1. finance
2. bank

Bachelor of Finance and Banking Thesis
SOLVING BAD DEBTS
AT VIETINBANK – DONG HA NOI BRANCH
Le Tuan Anh –FB00360
Group members
Nguyen Van Quynh – FB00220
Dinh Quang Thang – FB00218
Mac Thi Thanh Thuy – FB00157
Pham Thuy Dung – FB00145
MSc. Dinh Viet Dung
Supervisor
-Ha Noi, 12/2014-
AKNOWLEDGEMENTS
Our thesis could never have been accomplished without the valuable supports from many people
such as lecturers, graduate students, families during all the time we were conducting the research.
We would like to give our lecturer Mr. Dung firstly a big thank because of his dedicated and
enthusiastic guidance. He gives our group not only many great advices but also the endless
encouragement in every moment we need most. It is hard to show the deepest gratitude from us to
him.
Special thanks go to Mr. Vu Xuan Thanh, vice director of Vietinbank – Dong Ha Noi branch. He
is a good leader and often willing to offer us the valuable data and useful information to analyst in
this thesis.
Finally, we would also like to thank our families and friends who always stand by us, and give us
all the best wishes.
Table of contents
AKNOWLEDGEMENTS ............................................................................................................. 2
LIST OF TABLES AND FIGURES ............................................................................................ 6
ABSTRACT ................................................................................................................................... 1
CHAPTER 1: INTRODUCTION ................................................................................................ 2
1.1.
Topic definition ................................................................................................................ 2
1.1.1. Topic background ......................................................................................................... 2
1.1.2. Company background ................................................................................................... 2
1.1.3. Topic rationale .............................................................................................................. 6
1.2.
Research objectives .......................................................................................................... 7
1.3.
Research questions ........................................................................................................... 8
1.4.
Relevance of research objectives and research questions ................................................ 8
1.5.
Research scope and limitations......................................................................................... 8
1.6.
Methodology and data overview ...................................................................................... 9
1.7.
Thesis outline .................................................................................................................... 9
1.8.
Conclusion ...................................................................................................................... 10
CHAPTER 2: LITERATURE REVIEW AND THEORETICAL THEORIES.................... 11
2.1.
Introduction .................................................................................................................... 11
2.2.
Literature review............................................................................................................. 11
2.3.
Literature Gap ................................................................................................................. 20
2.4.
Theoretical theories ........................................................................................................ 21
2.4.1. Definition of bad debt ................................................................................................. 21
2.4.2. Causes of non-performing loans .................................................................................. 21
CHAPTER 3: METHODOLOGY ............................................................................................. 29
3.1.
Introduction .................................................................................................................... 29
3.1.1. Research philosophy ................................................................................................... 29
3.1.2. Research approach ...................................................................................................... 30
3.1.3. Research methods ....................................................................................................... 31
3.1.4. Research strategy ........................................................................................................ 32
3.1.5. Time horizons ............................................................................................................. 32
3.2.
Data collection method ................................................................................................... 33
3.2.1. Sampling technique ..................................................................................................... 33
3.2.2. Primary data collection ............................................................................................... 33
3.2.3. Secondary data collection ........................................................................................... 34
3.2.4. Data characteristic ....................................................................................................... 34
3.3.
Data analysis method ...................................................................................................... 34
3.3.1. Primary data analysis .................................................................................................. 34
3.3.2. Secondary data analysis .............................................................................................. 35
3.4.
Limitations of the research ............................................................................................. 35
3.5.
Ethical considerations ..................................................................................................... 36
3.6.
Conclusion ...................................................................................................................... 36
CHAPTER 4: FINDINGS AND ANALYSIS............................................................................ 37
4.1.
Introduction .................................................................................................................... 37
4.2.
Non-performing loans in Vietnam banking system ........................................................ 37
4.3.
Non-performing loans index calculations....................................................................... 39
4.3.1. Overdue ratios: ............................................................................................................. 39
4.3.2. NPL ratios: ................................................................................................................... 40
4.3.3. Non-performing loans/ Total overdue debt ratio: ....................................................... 40
4.4.
Provision loan loss of Vietinbank – Dong Ha Noi branch. ............................................ 41
4.5.
The process of resolving bad debt in Vietinbank – Dong Ha Noi branch ...................... 42
4.5.1. Reasons of bad debts ................................................................................................... 42
4.5.2. Management process and handling of debt in Dong Ha Noi branch. .......................... 43
4.5.3. Solutions of Vietinbank – Dong Ha Noi ..................................................................... 44
4.6.
Case study ....................................................................................................................... 45
4.6.1. Case study 1: Solving non-performing loans in Phuc Hai Company. ........................ 45
4.6.2. Case study 2: Solving Bad Debts Huy Hoang Construction Company ..................... 46
4.6.3. Case study 3: Viet Anh Import and Export Company ............................................... 48
4.7.
Results of NPLs .............................................................................................................. 49
4.8.
Short-term and Long-term solutions: ............................................................................. 49
CHAPTER 5: CONCLUSION AND RECOMMENDATIONS ............................................. 51
5.1.
Conclusion ...................................................................................................................... 51
5.2.
Methodology and data analysis ...................................................................................... 51
5.3.
Summary of the findings ................................................................................................ 51
5.4.
Recommendations .......................................................................................................... 53
5.4.1. From researchers ......................................................................................................... 53
5.4.2. From Vietinbank – Dong Ha Noi branch:................................................................... 55
5.4.3. From Vietnam State Bank:.......................................................................................... 55
5.5.
Research limitation ......................................................................................................... 55
5.6.
Future research direction ................................................................................................ 56
REFERENCES .......................................................................................................................... 57
APPENDIX .................................................................................................................................. 60
LIST OF TABLES AND FIGURES
Table 1: Summary of studies about the solutions to resolving non-performing loans (NPLs)
Table 2: Bad debts groups
Table 3: Research strategy
Table 4: Data Characteristic
Table 5: PLL of Vietinbank – Dong Ha Noi branch
Figure 1: Vietinbank organization chart
Figure 2: The report summary activities of State bank
Figure 3: Thesis outline
Figure 4: Research onion
Figure 5: Deductive of the research
Figure 6: VietinBank NPL status, unit: million VND
Figure 7: Comparing NPLs status of 5 banks
Figure 8: General provision
Exhibit 1: The heart of the Securitization Process
Exhibit 2: Net general government debt of developed countries in 2010
ABSTRACT
First of all, bad debt or non-performing loans is a problem of banks over the world and Vietnam
banking system in particular. Therefore, solving bad debts is a topic of all banks nowadays. Bad
debts impact to profits of banks downwardly and make them lost opportunity cost of capitals to
invest, build and help economy developing. Solving non-performing loans is an important stage
and strategy for the establishment and development of the banking system in general and
Vietinbank in particular. In this topic, we do research about solutions for bad debts in Vietinbank
– Dong Ha Noi branch.
The topic ”Solving bad debts at Vietinbank – Dong Ha Noi branch” with attendance of Le Tuan
Anh, Nguyen Van Quynh, Mac Thi Thanh Thuy, Dinh Quang Thang and Pham Thuy Dung will
be done with purpose of researching about bad debts in Vietnam banking system, and especially
in Vietinbank- Dong Ha Noi branch. After that, we will reviewing solutions from documents,
journal of researcher to show more details about bad debts and solutions for them. Next, we will
analyze and find about solutions and efficiency of solving bad debts through interview, data
information from Vietinbank – Dong Ha Noi branch supports through quantitative and qualitative
analyzing. We approached and analyzed follow in deductive methods. And after finding and giving
solutions of banks, we will give recommends other solutions more efficient to solving bad debts
exist in Vietinbank – Dong Ha Noi branch
Although, we have limitations about data from internal data of bank with results we gained, we
hope this research provide a clear view and impact of the solution for performing
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CHAPTER 1: INTRODUCTION
1.1. Topic definition
1.1.1. Topic background
In the current economic market, the operations of foreign and domestic banks are facing many
difficulties and challenges, of which the issue of bad debts is a controversial topic that both public
opinions and economic voices are most interested in. In the field of communication media, the
topic of bad debts has already attracted many talks and discussions all over the world. For example,
in Korea, the period from 1980 to the beginning of 1990s, even though the country gain many
impressive economic achievements such as the annual average GDP growth rate of 9% and
average investment level of 13.6%, it still had to encounter several risks that are associated with
the development, especially in the banking field. In 1997, the situation of bad debts was alarming,
total non-performing loans reached 7.4% and increased to 8.3% one year later (CIEM, 2013).
Furthermore, bad debts have been also mentioned frequently on the statements by public officials
and Congress for a long time. Therefore, proving solutions of settling a bad debt is an important
stage and strategy for the establishment and development of the banking system in general and
Vietinbank - Dong Ha Noi branch in particular. It is the subject that is being studied and
investigated in this research.
1.1.2. Company background
a. Vietinbank
Vietinbank, one of the largest commercial banks, has an important role. It is a pillar of the banking
system in Vietnam. Vietinbank was founded in 1988 after separating out from the State Bank of
Vietnam. The system's network extends widely with a transaction basis 151 branches and over
1000 transaction divisions.
There are nine independent accounting companies including Leasing company, Stock
Commercial company, Debt Management Company, Asset exploitation company, VietinBank
Insurance company, Asset Management company, Jewelry company, Union company, the global
money transfer company, VietinAviva company and 05 business units involving the Center for
Information technology, Card Centre, School of Training and human resource Development,
motels Bank Star I and motels Bank Star II - Cua Lo.
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Vietinbank is a founding member and joint venture partner of Indovina Bank. It has relationships
with over 900 banks and financial institutions in over 90 countries and territories worldwide.
Vietinbank is the first bank in Vietnam to be certified by ISO 9001: 2000. It is a member of the
Vietnam Banking Association, the Asian Bankers Association and Society for Worldwide
Interbank and Financial Telecommunication (SWIFT), Issuer and Payment VIS and MASTER
international.
Charter capital of Vietinbank is : VND 37,234,045,560,000
Head office of Vietinbank at 108 Tran Hung Dao Street, Hoan Kiem District, Ha Noi, Vietnam.
VietinBank’services: Fund Money Markets, Bonds, equity investments, internet Banking, foreign
and other innovative financial and investment exchange, guarantee, letters of Credit, Capital
Markets... Vietinbank is the pioneerd bank in applying modern technologies and e-commerce in
Vietnam to meet requirements of business & management. It is the first bank in Vietnam to open
branches in Europe, which marks outstanding development of the Vietnam financial market in the
country and around the world. The bank has not only constantly improved the products and
services available but also developed new products to meet highest customers’ demands.
Vietinbank is the pioneered bank in applying modern technologies and e-commerce in Vietnam to
meet requirements of business & management. It is the first bank in Vietnam to open branches in
Europe, which marks outstanding development of the Vietnam financial market in the country and
around the world. The bank has not only constantly improved the products and services available
but also developed new products to meet highest customers’ demands.
Mission
Vietinbank is the No. 1 bank of Vietnam's banking system in providing modern, utility and
international standard financial products and services.
Vision
By 2018, Vietinbank will become a conglomerate, modern, and multi-functional bank according
to international standards.
The core value
- Direction to customers;
- Direction to perfection;
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- Dynamic, creative, professional and modern;
- Honest, transparency and ethics;
- Respect;
- Protection and brand development;
- Sustainable development and responsible to the community and society.
Business Philosophy
- Safe, effective and sustainable;
- Loyalty, dedication, solidarity, innovation, wisdom and discipline;
- The success of our customers is the success of Vietinbank.
Slogan: Raising the value of life.
Go to VietinBank, you will be satisfied with the quality of products, services and professional
service style, enthusiasm with criteria: Raising the value of life.
b. Vietinbank –Dong Ha Noi Branch
Vietinbank –Dong Ha Noi Branch precursor Yen Vien branch was established in 2001 on the basis
of PGD expanding the scale Yen Vien, which is a level II branch under Vietinbank- Chuong Duong
branch. The effort of all branches’ employees in 2003 led it to a level 1 branch under the Bank for
Industry and Trade of Vietnam.
Currently, the subsidiary has it’s headquarter at 284 Ha Huy Tap - Yen Vien - Gia Lam - Ha Noi.
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Director
Deputy director
Sale unit
Coporate
customers division
Service unit
Payment of import
and export
division
Risk managerment
unit
Assessment and
risk management
division
Individual
customers division
Support unit
administrative
organization
division
Imformation
technology unit
Computing
information
divison
Accounting
division
Currency
warehouse
division
Synthetic
marketing division
Figure 1. Vietinbank organization chart
Sale unit is a professional division directly with customers to exploit the capital, perform
operations related to credit, manages credit products in accordance with regulations and current
charters of State Bank and Vietinbank.
Individual customers division is the department directly dealing with individual customers to
exploit capital for operations related to credit, manage credit products in accordance with regimes,
applicable rules and guidelines of State Bank and Vietinbank.
Risk managerment unit performs evaluation or reevaluation customers, projects, plans for granting
credit, assessment, risk management according to the direction of Vietinbank. In risk management
department, debt management group is responsible for managing and handling debt problems;
managing, exploiting and processing the loan collateral according to the provisions of the State to
recover the debt principal and loan interest; managing , monitoring and evicting risk-handled
loans.
Accounting division is the department conducting transactions with customers related to financial
management and internal expenses at the branch. The department is responsible for managing the
trading system on the computer, the cash management to each teller in accordance with the
provisions of State Bank and Vietinbank, task performance in advising customers to use Bank's
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products.
The branch has 153 staffs, including 124 officers who have college qualifications - undergraduate
up to 81% of the bank's staff. Compared to state-owned banks and other branches in the system,
qualifications of staff of the East Branch of Ha Noi are relatively good. The banking sector is more
and more fiercely competitive and risky, therefore the branch should be concerned about recruiting
qualified employees.
1.1.3. Topic rationale
Practical problem:
In the time of economy recession, solving of bad debts is the most difficult problem in the short
term. Bad debts of banks are considered the basic cause to the flow congestion of economy, so bad
debts make unsafe for the banking system and show the difficult situation of business. In 2012,
because business affected by many reasons so profit of businesses were losses. And the results,
bad debts of banks continued to increase, became “bottleneck’ of economy, prevent flowing of
capital flows.
According to report summary of State Bank cited by Pham, ratios about bad debts in Vietnam
banking system such as Bank of Foreign Trade of Vietnam (VCB), Bank for Investment and
Development of Vietnam (BIDV), Vietnam Joint Stock Commercial Bank For Industry and Trade
(CTG), Asia Commercial Bank (ACB), Vietnam Technological and Commercial Joint Stock Bank
(TCB), Sacombank (STB), Military Bank (MB), Vietnam Bank for Agriculture and Rural
development (AGRIBANK) from year 2008 to quarter 3 year 2013.
(Unit: %)
Year
2008
2009
2010
2011
2012
Q3/2013
VCB
3,87
2
2,91
2,1
3,21
2,8
BIDV
4,8
2,82
2,6
2,8
2,67
2,78
CTG
1,02
0,61
1,27
0,74
1,46
2,1
ACB
0,08
0,4
1,07
0,89
2,1
2,98
STB
0,23
0,69
0,52
0,57
1,4
2,51
TCB
1,4
2
2,29
2,83
2,94
5,2
AGR
2,7
3,97
2,6
6,67
6,14
6,54
MB
1,1
1,66
1,3
1,59
1,84
2,44
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The report summary activities of State bank
8.00
6.00
4.00
2.00
2008
2009
2010
2011
2012
Q3/2013
Year
VCB
BIDV
CTG
ACB
STB
TCB
AGR
MB
Figure 2
(Source: The report summary the activities of State bank from 2008 to the third quarter 2013)
According to the data of the report summary activities of the State Bank from 2008 to the third
quarter 2013, Agribank has the highest bad debts ratio of banks in this report, second position is
BIDV and the third place is Vietcombank and Techcombank. From 2008-2010, Vietcombank,
BIDV and AGR have bad debts ratio nearly equal. However, the period 2011 to end of third quarter
of 2013, bad debts ratio of AGR has tend to rise very high and the highest ratio in 2011 (6.67%).
On the other hand, we have three banks that have lowest bad debts ratio such as CTG, ACB, STB
(in 2008 bad debts ratio of ACB is only 0.08%)
1.2. Research objectives
In our thesis, we will determine some objectives to make clearly our topic and find a good answer
for our research questions:
- The current situations of bad debts in Vietnam.
- The status about the bad debts problems of VietinBank – Dong Ha Noi branch
- To see how VietinBank – Dong Ha Noi branch deals with bad debt issue
- Proposing solutions suggested by researchers to deal with bad debts
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1.3. Research questions
1.
What are the main causes lead to bad debts at of VietinBank – Dong Ha Noi Branch?
2.
What are the effects of bad debts to the performance of VietinBank – Dong Ha Noi Branch?
This question was conducted research at VietinBank – Dong Ha Noi Branch
3.
What are the solutions to solve bad debts at VietinBank – Dong Ha Noi Branch?
The solution will be applied on VietinBank – Dong Ha Noi Branch.
1.4. Relevance of research objectives and research questions
There is relationship between research objectives and research question when ideas in these to help
research go to right approach. We have four research objectives and three research questions.
The current situations of bad debts banks in Vietnam and solutions of Government, banks and
corporates to deal with this problem and the status about the bad debts problems of Vietinbank –
Dong Ha Noi Branch. These are answering question:” What are the effects of bad debts to the
performance of VietinBank – Dong Ha Noi Branch”.
And Vietinbank – Dong Ha Noi branch deals with bad debts issue. To support for question: “What
are the solutions to solve bad debts at Vietinbank – Dong Ha Noi Branch? We will propose
solutions to deal with bad debts.
1.5. Research scope and limitations
This research will give us an overview of bad debts in Vietnam banking system and especially in
Vietinbank –Dong Ha Noi branch. In this thesis, we will research and analysis about solutions for
bad debts in Vietinbank – Dong Ha Noi branch such as used provision loan losses to solve or sell
and auction collateral. From those, we recommend some solutions which suitalble for the bank to
apply such as loan sales, equity participation. Besides, data information from Vietinbank branch
has limitation
Source of information: all reports and numbers will be collected from Vietnam Joint Stock
Commercial Bank for Industry and Trade (Vietinbank) – Dong Ha Noi branch and other websites
included researched papers and data
Time horizon: from year 2008 to quarter 2 years 2014
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1.6. Methodology and data overview
Our research had been applied deductive approach and some methods which were incorporated of
qualitative and quantitative research method. The data were collected based on the information in
the interview with the vice manager of Vietinbank – Dong Ha Noi Branch (primary data), and the
Branch’s annual reports, financial statements, books, journals, other information about solutions
to resolving non-performing loans and organization’s performance (secondary data). In addition,
we collected and analyzed some cases which linked with the NPL situation of the Branch and
solutions that were applied by the Branch to solving problem. From the collected data, research
can have clear view of the NPL situation of Vietinbank – Dong Ha Noi Branch and can appraise
the solutions (advantages and disadvantages) which were applied by branch to resolving NPLs.
The target is summary information and proposes some recommendation for the branch.
1.7. Thesis outline
Chapter 1
Introduction
Chapter 2
Literature review and
Theoretical model
Chapter 3
Methodology
Chapter 5
Conclusion and
Recommendations
Chapter 4
Analyses and Findings
Figure 3: Thesis outline
As you can see, there are 5 chapters in this thesis. Chapter 1 presents about Vietinbank background
and gives research objectives, research questions, methodology and data overview. After a brief
opening, you can look more information and know more at literature review from chapter 2 and
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after that, we will compare and contrast between them to show differences. Therefore, chapter 3
talks about research philosophies and the methods used to collect data, limitations of the research
project. Then, in chapter 4, we analyze the collected. Finally, after completing 4 chapters
previously, we will answer to the research questions and gives recommendations and limitations
which exist when researching progress.
1.8. Conclusion
In summary, this chapter included an overview about topic research, research objectives and
research questions. We get the right approach in research to find solution to current bad debts in
the Vietnam banking system in general and Vietinbank – Dong Ha Noi branch in particular. In the
next chapter, we will review theories and analyze the relevant literatures then determine the gap
for purpose of this research.
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CHAPTER 2: LITERATURE REVIEW AND THEORETICAL
THEORIES
2.1. Introduction
This chapter provide for us knowing more about solutions to solve the bad debts through literatures
before. These literatures will enumerate in a logical way and follow the positions. This is results
about the topic previous researched which arranged by time and easy to find out differences
between ideas of authors. After that, we will compare and contrast those opinions to see details
the points of view of researchers. From that, we will have more answers for thesis topic.
2.2. Literature review
Table 1: Summary of studies about the solutions to resolving
non-performing loans (NPLs)
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12
13
Solutions to deal with bad debts according to related literature review
It is obviously that there are a large wide of studies involving to non-performing loans in over the
world. In fact, the studies show us many solutions of non-performing loans in banking systems.
Each country has the particular methods of NPLs’ solution to some extent. This thesis would
review some typical methods, efficiency and some experiences of countries that mentioned in the
table above. Based on that, some suitable solution should be chosen for Vietnam NPLs’ situation.
One of the early literatures about non-performing loans lesson is written by Claudia in 1994. This
paper conducted research deeply about bank crisis and some empirical methods that four countries
including The Czech Public, Estonia, Hungary and Poland used to solve NPLs and bank solvency.
The outlook points out the NPLs’ problem could be solved by reforming states. As part of
reforming program, banks should be capitalized NPLs into stock market by some indirect
subsidiaries and states-own banks should be private to commercial banks.
Another particular case study in Poland is conducted in this thesis, Lachowski (1995). This
research referred to the method restructuring of a NPL portfolio in Powszechny bank Gospodarczy
w Łodzi in the midst of an economic transition period. This research shows us the method to rescue
a bank from the problem of NPLs. By the strategy of restructuring the bad debt portfolio, the
research suggest us a lesson from dealing with NPLs portfolio.
Richard (1998) figured out the manners which Thailand insolvency regime responded to the
financial crisis beginning in 1997. The main point in this report is the context of Thailand is
rehabilitation and reform. In other words, the Thai banks conducted loans sale and securitized
NPLs through TAMC (Thai Asset Management Corporation) and DCRC (Corporate Debt
Restructuring Committee). Beside, Thailand also applied some solutions, but two methods above
was actual remarkable.
In the last century, China is the one of the big NPLs’ case study. This context was summarized in
the article of Richard and Bing (2002). China conducted so many methods for tackling with NPL
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problem and divided into three stages but it was significant that key points of these solutions are
loan sale, write-off loans, restructuring and securitization. However, one of the consequences that
authors mentioned in this article is raise the question about the efficiency of reform.
The study by Daya, Mokhtarul and Harminder (2008) is comparing China context with India
context. This study took the comparative analysis of Chinese and India banks with some interesting
observations. All in all, key methods used by both banking system of two nations are loan sale,
restructuring, securitization and write-off loans. However, the efficiency of solutions was
discussed more clearly. Following by authors, Indian banks show the superior in efficiency to
Chinese banks.
a. Loan loss provision:
As the thesis, mentioned in the previous parts, loan loss provision is one of the methods involving
the NPLs solution. Loan loss provision could be understood as amount of money covering the
future loss on loan defaults. The expense also would be calculated their pre-tax incomes. This
guarantees bank’s liquidity and capitalization when customer’s repayment ability defaults. The
more loan loss provision allocated, the risker banking system is.
According to No. 18/2007/QD-NHNN, loan loss provision is sorted out by 5 groups as the table
below:
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Table 2: Bad debts groups
In this section, this thesis conducts to illustrate some achievements of previous research involving
the efficiency of loan loss provision in banking system. In theory, banks often use loan loss
provisions to make amount of money for reserving to cover the expected losses. A loan loss
provision is the accrual concept that is assessed by credit risk considerations. However, in many
countries, banks’ managers directly executed that work. As the results, level of loan loss provisions
is depended on the managerial decisions, World Bank (2002).
Following the researches of Wahlen (1994), Docking et al. (1997) and Lobo and Yang (2001),
there is a positive relationship between bank incomes and loan loss provision. In the other hand,
based on data for EU countries, European Central Bank (2002) found the negative evidence
between loan loss provision and incomes. Others researches such as Beaver et al. (1989),
Chamberlain and Magliolo (1995), Beaver and Engel (1996) and Kim and Kross (1998) pointed
out practical evidences on using loan loss provision to manage bank’s income and capital.
b. Write-off the loans
The term of write-off the loans refers to reduction of apart value of loans or total value of loans.
Because the lenders are not able to repay money that they borrowed from banks, or when their
business was bankrupted. In banking account systems, these bad loans were considered as noncollectable and removed from balance sheet. The consequence is reduction of income as the result
of increasing expenses.
Following a research of Kay and Goe (1999), after a period time in 1995, Japanese banks
conducted to write-off non-performing loans with the voluntaried Sumitomo even they got much
pressure from domestic investors. In fact that Japan drawled lessons from US banks in which
quickly write off bad loans in the early 1980s. In the context of Japanese banking crisis, the bad
loans engaged much with the real estate market. Therefore, the problems would be more difficulty.
Like the banking problems in Japan in 1990s, there was a large number of bad loans. One previous
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research about S&L crisis in the 1980s of Barry, Kenneth and Sigal (1997) shows us another case
of write-off methods in solving NPLs’ problems.
c. Restructuring
Restructuring is a solution of macro economy, it just be effectuated by government and can effect
to all economy. The research by Nelson and Tanaka (2004) show us the restructuring of economy
in Japan in period 1998-1999. The restructuring activities of Japanese government such as
recapitalizations: “in March 1998, 23 banks applied for capital injections totaling ¥1.8 trillion
(0.4% of GDP). In March 1999, the government undertook a second round of recapitalizations,
with fifteen major banks receiving a total of ¥7.5 trillion (1.5% of GDP)”. Besides, some major
banks were nationalized: “by 1998 Q4, the JFSA had identified two major banks (Long-Term
Credit Bank and Nippon Credit Bank) that had received public capital injections earlier that year
to be insolvent. These two banks were temporarily nationalized, with the government taking full
ownership.”
d. Loan sales
Not only can loans be used as collateral for issuing securities to raise new funds, but the individual
loans themselves can be sold to new owners. Selling loans and replacing them with more
marketable assets can increase a lender’s liquidity; loan sales remove both credit risk and interest
risk from the lender’s balance sheet and may generate fee income up front; selling loans off the
balance sheet slows the growth of assets, which helps management maintain a better balance
between growth of capital and the acceptance of risk in the lending function. (Rose and Hudgins,
2013).
According to table 1 that summarized the studies of solutions to resolving non-performing loan
(NPL), we can see many cases of study using Asset Management Corporation (AMC) to managing
loan sales activities. A loan sale is a good and common solution which were used to resolving NPL
by many countries, especially in financial crisis period 1997-1998.
The research of Dong He (2005) show us the role of KAMCO in resolving NPLs in Korea in
financial crisis period 1997-1998, in that time, NPLs “were at the hearth of the financial crisis that
engulfed the Korean economy”. And the government play leading role in solving problem by
established Korea Asset Management Corporation (KAMCO), after that, KAMCO had taken
important role to managing and developing NPLs market, helping Korea economy overcome the
crisis.
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The study of Inoguchi (2012) focus on two countries in South East Asia are Thailand and Malaysia,
both of two countries were influenced by financial crisis in the time of 1997-1998, that lead to the
sharp increase of NPLs. The government of Malaysia established Danaharta in 1998 while
Thailand government established Thai Asset Management Corporation in 2001 to resolving NPLs.
The effectiveness of the activities of these two AMCs was the improvements in macroeconomic
conditions, and facilities for purchasing loans caused a reduction in the number of NPLs in
Malaysia and Thailand.
The financial crisis period 1997-1998 did not affect too much to China, but in the early years in
21st century, with the development of the economy which have over one billion people, China
economy also deal with NPL problem that increasing rapidly, (Min Xu, 2005) appraised the
conditions of China economy to resolving NPLs with using AMC to resolving NPLs, the author
have based on experiences of other country and abilities of China economy to managing and
operating a market for NPLs.
Vietnam Asset Management Corporation was established on October 1st, 2013 by Vietnam
government to resolving NPLs and managing loans market, the research of Nguyen (2012), he was
found on the experiences in operating system and the performance of AMCs in some countries
such as: America, Thailand, China, Korea to make some suggestion to the management of VAMC.
e. Securitization
Securitization of loans and other assets is a simple idea for rising new funds. Securitizing assets
requires a lending institution to get aside a group of income-earning, relatively illiquid assets, such
as home mortgages or credit card loans, and to sell relatively liquid securities (financial claims)
against those assets in the open market. As the asset pay out – for example, as borrowing customers
repay the principal and interest owed on their loans – that income flows to holders of asset-backed
securities. In effect, loans are transformed into publicly traded securities. Thus, securitization is
using in the security markets to fund a portion of a lender’s loan portfolio, allocation capital more
efficiently, diversity funds sources, and possibly lowers the cost of fund raising. For its part, the
securitizing institution receivers back the money it originally expended to acquire the assets and
uses those funds to acquire new assets or to cover operating expenses. (Rose and Hudgins, 2013)
18
Just like any other asset class, NPL may be securitized by selling the expected stream of cash
flows, whatever that may be, to investors. Even with the securitization of NPLs, recovery methods
– such as bad debt collection, liquidation of property, corporate reconstructing, and negotiated
settlements – still must be employed to produce the cash flows that service the interest and
principal owed to security holder.
NPL securitization is unique in the opportunities is provides for both originator and investor. From
the bank’s standpoint, securitizing its NPLs removes and illiquidity and high-risk asset from its
balance sheet and replaces that asset with cash. Doing so has the obvious advantage of increasing
the bank’s operating capital position by allowing it to use the cash to issue more (and hopefully
wiser) revenue-producing loans. (Ferguson, 2007)
The study of Herr and Miyazaki (1999) showed us the effect of securitization to Japan market and
the impacts of securitization to NPLs and the liquidity of cash flow. Besides, authors also brought
suggestion to Japan government to manage securitization activities to reduce risks. Bowman
(2007) overviewed first German NPL securitization transaction, then analyzed about its strategies,
appraised strengths of the transaction, this is good experiences for other countries which want to
resolve NPLs by using securitization.
Min Xu (2005) appraised conditions of China stock market to applying securitization to resolving
NPLs and examined the effective of this solution to China economy.
By using securitization to resolving NPLs like a higher level of using AMC to sales loan. Almost
AMC be controlled by government, and managing loan sale activity of NPLs market, this solution
can be applied in both developed and developing countries. A Sale loan to reduce NPLs is a
common solution after finance crisis time 1997-1999. Securitization is a new solution to resolving
problem of non-performing loans, this solution just were applied in some developed economy,
where have the fluent stock market and high credit rating.
f. Equity participation:
19
Equity participation is also a solution some banks applied to resolving non-performing loans in
recent time. By using the way to transfer of bank loans into equity shares, the bank can reduce
non-performing loans and transfer that loans to shares, it mean the bank will become a shareholder
of the company. However, the credit risk which the bank have to deal with will become investment
risk, which requires accurate valuation measures from bank. It seem to be a short-term solution to
resolving NPLs.
Tran and Do (2012) used case of Bianfishco company, which nearly bankrupt in the early of 2012,
have the new shareholder is Saigon – Ha Noi Bank (SHB). Bianfishco borrow money from SHB
and this money become NPLs when Bianfishco have difficulty in business. The transfer of bank
loans into equity shares seems to be a good solution to save both bank and company. Researchers
analyze the case and appraise the advantages and disadvantages of this solution and the ability to
widely apply to resolving NPLs.
2.3. Literature Gap
Resolving Non-performing loans (NPLs) is a big deal of Vietnam economy in recent years,
Inspection agency of the State Bank put the figure at NPL ratio of banks is about 8.6%, equivalent
to 200,000 billion (2013). After reviewing the related literatures about solutions to resolving NPLs,
we have come to acknowledgement that some solutions aren’t applied to Vietnam economy and
Vietinbank or need time to see the effect in solving the problem.
Firstly, about the securitization, this solution can’t be applied in Vietnam, at least in nearly future.
Vietnam economy have some developed in recent years but the stock market still weak, credit
rating in average point, the liquidity of cash flow and the fluency of market are uncertain.
Government and financial institutions need time to build and learn to control higher level market
system.
Secondly, as we know, the VAMC was established in October, 2013 still need time to perform the
effective in resolving NPLs, no one has carried out a deep, thorough research about the loan sales
activities can impact to a branch of a bank. In our thesis, we will make clearly about the solutions
were applied in Vietinbank – Dong Ha Noi Branch and the effect of each solution in resolving
NPLs.
20
2.4. Theoretical theories
2.4.1. Definition of bad debt
Commercial banks were divided into 5 groups of loans: Standard loans, Criticized loans, Substandard loans, Doubtful loans and Loss loans respectively. In No 493/2005/QĐ of State Bank of
Vietnam, a bad debt refers to the debt that has the ratio of bad debts to the total outstanding debt
in Group 3, 4 and5.
Bad debt
Bad debt ratio = Total outstanding debt x 100%
Non-performing loan groups are defined according to the number of days over deadline.

Group 3(sub-standard debts) includes loans which are overdue of repayment from 90
to 180 days and restructure repayment term which are less than 90 days past over based
on the restructured repayment period.

Group 4(doubtful debts) includes loans which are overdue of repayment from 181 to
360 days and restructure repayment term which are from 90 to 180 days based on the
restructured repayment period.

Group 5(Loss debts) includes loans are more than 360 days overdue, restructure
repayment term which are over 180 days based on the restructured repayment period
and debts pend as prescribed by the Government.
2.4.2. Causes of non-performing loans
Macrovision
There are many causes which makes banks have many bad debts from growing of interest rates or
from banks or borrowers. We will look those causes from two visions: macrovision and
microvision. First, with macrovision, we will start from global financial crisis in 2008.
In current economy, we don’t remind GFC 2008 (Global financial crisis 2008). It originated from
United States and spread around the world. The financial crisis made the global economy down
and warned dark colors of global economy picture 2008. In the first 6 months, the entire world
was worried because the price of products was raised quickly from energy prices to consumer
products. From May, 2007 to March, 2008, oil prices were raised tripled. At the same time, in
other countries, food became luxury items. Although government of countries was given solutions
how to down the inflation, improved purchasing power of customer .We have two causes which
21
makes global financial crisis 2008-2009 .There are direct cause and proximate cause. First, an
example such as the big financial organizations was on bankruptcy such as Lehman Brothers after
158 years existed. And after 10 days, Washington Mutual was bankruptcy with big property (307
billion dollars). Besides, due to the global financial crisis, the one of investment banks in the USA,
Merill Lynch was merged by Bank of America; the government gave 85 billion dollars of AIG
(American International Group), the biggest insurance group in the world to save financial market
which maybe has results more terrible. All bankruptcy of financial organizations was from one of
reasons such as loan credits loss capital, borrowers cannot pay debt, MBS (mortgage-backed
securities) devalues, investor sell at a loss, and banks was difficult about liquidity. Next, reason
two in direct cause: belief of people because financial policies weren’t House of Representatives
(USA) passes, it was uncorded and not catch up with market of financial regulation policies and
solutions were not effective. Therefore, this is proximate cause. The first reason is freedom in
managing economy .There is from estimating exactly market, managing not tight such as loosen
loan conditions or loans under standard. Next, the second reason is not clean of the stock market
.With stock prices was not real, stock council was not publish through not property public and not
supervisors. The real estate bubble was broken which was the third reason with canceling GlassSteagal law. According to Rickards (2008),”the financial crisis might not have happened at all but
for the 1999 repeal of the Glass – Steagal law that separated commercial and investment banking
for decades. If there is any hope of avoiding another meltdown, it is critical to understand why
Glass – Steagall repeal helped to cause the crisis. If something is return such as Glass – Steagall,
other bigger disaster will happen in the future. Glass- Steagall Law (Banking law 1933 –USA) did
not allow the commercial banks which were members of Federal Reserve System participated in
most of the investment banking operations. And limiting their activities in short term loans to
accord classify of debts group and not term deposits. In addition, derivative stock MBS was not
enough criterion and the last, buying orders were too much and opposite selling orders were low.
Second, national debt in 2010 is a debt crisis with the first explosion point in Greece in early 2010.
It divides two types: public debt from other countries and public debt from tax in that country.
When spending of Greece government debt that was continuous increased. Rate of interests from
government bond in 2 years in Greece was risen from 3.47% on January, 2010 to 9.73% on July,
2010 and jumped to 26.65%/year on July, 2011. The critical time spread to Portugal, Spain and
Italy in eurozones.
22
Exhibit 2: Net general government debt of developed countries in 2010
The Vietnam banking system was impacted from GFC 2008 and government debt .First, there
make inflation in the end of year 2010 which makes CPI in 11 months rise to 9.58%, more than in
2008 and 2009 were 20.71% and 5.07%, Collapsing of Vietnam Dong (VND) and US dollar (USD)
on August, 2010 and changes of gold market in country and the world. These are reasons of making
inflation increased high in present. Before this situation, State bank must control basically interest
rate such as grow 3 times and lower 5 times. Monetary tightening policy of the State bank created
pressure for liquidity of commercial banks. VND interest rates deposits have many changes in
period ever. In interbank market, the highest interest rate deposit was 43%/ year, many members
pushed simultaneously in population to over 19%/year and had case up to 20%/year. In this time,
lending operations of commercial banks silent and waited. Business was hard to approach capital
because higher of interest rates. Consumer credit was nearly cut off, growth credit growth to the
lowest step in years, so business was borrowing in banks, they did not have money to invest,
continue open market. Borrowers won’t pay debt included fund and interest for banks. Nonperforming loans of banks increased in following months.
Microvision
a. Qualitative:
23
The major cause of bad debt problem was the baking system concentrated lending to property
sector (Min Xu, 2005). With economic crisis 2008, the disintegration of the real estate bubble led
to reduce the value of loan collaterals. Summarized the causes, there are two factors of cause of
bad debt: borrower factors and banks factors.
Borrower factor include:
-
Reputation: It is the history of borrowing lending of borrower. Reputation is created by
customer behavior such as credit history, customer repayment ability….therefore, if
new borrowers and new companies wants to lend in banks can’t show the credit history,
customer repayment ability…. Banks can’t have factor assessment the reputation of
customer.
-
Volatility of earnings: If borrowers with repayment frequency delinquent, frequent
changes proposed repayment period proposed loan or a loan to pay a portion of the
principal on existing loans, the quality of loan is low level and high risk. Besides, we
can see balances in deposit accounts, it tends to decrease, customer requirement to
borrow to add to working capital, increase in commercial loans to pay, difficulties in
paying staff salaries and other payments.
-
Purpose of loan: The question in the using loan on right purpose is the first concern of
the credit officer. Loan use for working capital, additional equipment or inventory…
Bank will also carry out on local economic, business environment and competition.
-
Collateral: Collateral is one of the most factors in lending decision. Banking system set
up a credit guarantee safety, the loan value is much less than the asset value guarantees.
“If the borrower’s assets have low value, there will be have limited by collateral
because of it has low value and liquidity (Rose and Hudgins 2013).”
Bank factors include:
-
The credit offices: credit offices is an important factor decide the loan. The ability
appraisal customers by qualitative methods can lead to false assessment of customers.
Assessments mistake can lead to the wrong decision. The credit officer is particularly
sensitive to such features as age, qualifications and the value of collateral…
-
Credit management: Changing management style, loan forms will create gaps, thereby
creating bad debts. Banks regularly change the credit policy, customer management,
management practices heterogeneity industry, size, boundaries and extent of credit
ratings. The irrationality of customer management is incurred signs of credit risks,
which affect the quality of bank credit. Sometimes, because of emphasis the large
24
customers too much that the bank ignored, shorten processes and mitigate credit
conditions, work through the necessary steps in evaluating or mitigating the terms of
the credit agreement advantage. This is an expression of the quality of bank lending is
a problem.
-
Interest rates: Interest rates and credit risk have a correlated relationship. Banks
encourage firms borrow with high interest rates also meant higher credit risk. However,
banks need to use the credit scoring models to calculate credit risk. If not, loans are at
risk, banks can loss the loans.
b. Quantitative
Bank factors include:
Overdue debt indicators affect the quality of the loan.
Overdue debts incurred when the loans come due, the airline repaid in whole or in part principal
and interest. It is financial weakness and customer signs the credit risk of banks.
1. Overdue ratio
Overdue ratio =
Overdue balances
Total loan
x 100%
Overdue loans ratio reflects the balance of principal and interest can’t be recovered. This is the
basic criteria for quality-credit activities of banks. The ratio of overdue debts is high to evidence
that the credit quality of banks is low, and vice versa.
2. The total loan overdue debt ratio
Total loan overdue debt ratio =
Total loan overdue debt
Total loan
x 100%
This index includes all overdue amounts from the first day so it reflects the level of bank risk.
3. Customer overdue debt ratio
Number of customer overdue debt ratio =
Total number of customer overdue debt
Total number of customer loan
x 100%
This indicator shows the proportion of overdue customer number of borrowers. If the ratio is high,
reflecting the bank's credit policies is not effective. In addition, if this ratio is lower than the
overdue ratio, it shows overdue focus on large customers. It will enable the bank to adjust base
lending policy.
4. Target structure overdue
25
Short-term debt overdue =
Long-term debt overdue =
Short−term debt overdue
Total loan
x100%
Long−term debt overdue
Total loan
x100%
This ratio reflects the level of concentration of credit by maturity, if the credit balance of longterm is high proves that bank may be faced high risk but this structure will bring high profits for
bank. VietinBank need to adjust targets to match the target profit and credit risk identified.
5. The ability to recover overdue
Overdue debts recoverable ratio =
Overdue debt recoverable
Total overdue debt
Overdue debts non-recoverable ratio =
x 100%
Overdue debt non−recoverable
Total overdue debt
x100%
6. The provision of credit risk ratio
Provision ratio =
Provision loan loss establish
Total loan
x100%
Provision was taken from profit of bank and regarded as an expense to offset the loss of the loan
when the risk occurs, to ensure that the activities of the bank may be ongoing. This ratio reflects
the ability to offset losses on the total risk may occur from the bank, the higher this ratio, the ability
to offset the losses of the bank where possible risks.
Customer factors include
Credit turnover:
It can be seen that credit turnover, credit revenue and credit profit are usually used for analyzing
the effectiveness and efficiency of business activities of commercial banks. However, in the body
of found literature, there are no materials that see credit turn over as a ratio reflecting the credit
efficiency. When researching the policy documents of business activities at commercial banks,
credit turnover is not mentioned as well. Moreover, when planning, setting targets and analyzing
business activities at commercial banks, credit turnover is not utilized as a target, instead they use
target for outstanding loans.
When analyzing the scope of credit expansion, account payable revenues, account receivables and
credit turnover are important ratios. Account payable revenue is the target that reflects the credit
scope of commercial banks towards the economy. This one indicates quite accurately the lending
activities of commercial banks in a long time and the ability of credit activities in the past years.
26
In business in general (except for banking business), turnover ratio is used to assess the operating
effectiveness of companies. When performing financial analysis, there many turn ratios that can
be used, for example:
Total Asset Turnover = Sales or Revenues/Total Assets
This ratio shows how effective the company has used its assets to generate revenues. Generally
speaking, the higher the ratio, the better it is.
The meaning of Total Asset Turnover:
Revenue = Average Total Assets x Total Asset Turnover
For example, if company A and company B have the same asset size, with different factors, it is
obvious that the company that has the higher turnover would generate high revenue, leading to
make more profits.
Account Receivable Turnover = Net Credit Sales/Average Account Receivable
This is an efficiency ratio that reflects the times and speed that a business can turn its account
receivables into cash. It is an important measurement to evaluate the efficiency of an enterprise.
The higher the turnover is, the faster the company can collect its credit, the higher the ability to
convert credits into cash. This helps company free and increase cash flows, creating the initiatives
of providing capital for operations in business. In contrast, the lower this ratio is, the higher the
amount of money in use is, the lesser the amount of cash is. It decreases the initiatives of companies
in financing moving capital in business and the company can have to borrow money from banks
to provide operating capital.
The meaning of Account Receivable Turnover:
Net Credit Sales = Average Account Receivable x Account Receivable Turnover
If company A and B have the same size of account receivables, it is clear that the company with
higher turnover would have higher revenues, leading to higher profits.
After analyzing about banks and borrowers factors in quantitative and qualitative, we give for
readers one example to see more clearly and reality about these. This example about Phuc Hai
company which is SMEs (small medium enterprises), with fewer capital and employees .In
addition, these enterprises often have financial reports and business plan petty scale or not clearly.
27
But in Vietnam, SMEs are very popular and help to develop our country better so banks make use
of them to borrow in few months such as adding working capital.
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CHAPTER 3: METHODOLOGY
3.1. Introduction
After choosing the topic and exploring the theoretical background, this chapter deals with the
design of the methodological framework that will be used for finding the answers of the research
questions. The popular research framework “research onion” developed by Saunders et al. (2012)
will be employed as the foundation to build the research plan
Figure 4: Research onion
Source: Saunders et al. (2012)
3.1.1. Research philosophy
What needs to be done first in designing the methodological framework is to determine the
philosophy that will be used in the research. Research philosophy is defined by Saunders et al.
(2012) as the way to develop the research background, research knowledge and research nature.
A simpler way of explaining this term is a belief about the way information about one phenomenon
should be assembled, analyzed and employed (Cross, 2014). Because of its unique features, it can
seriously impact how a research is conducted, from the initial design to the final conclusion
(Flowers, 2009). As a result, research philosophy is unquestionably important to the planning and
implementation of a research methodological framework.
There are two dominant philosophical schools of thought in the world of research methodology
(Cross, 2014). They are positivism and post-positivism. The researchers belonging to the
positivism believes in the absolute stability and unbiasedness of the reality surrounding the
phenomenon (Comte, 1853). Therefore, the knowledge of the phenomenon is studied and
developed through an objective observation. This is why the concluded generalization and laws
29
are formed through the facts and data that are objective, obvious and measurable (Cross, 2014).
Positivism underlines the way scientists traditionally conduct research, which means using
quantitative methods in studying the stated problem.
On the other hand, post-positivists trust the reality surrounding the phenomenon is in fact
subjective as it is constructed by the mental part in human minds, including expectations,
memories and experiences (Blaike, 2010). Cross (2014) states that researchers belonging to this
school want to employ multiple and flexible research methods to look into the phenomenon in a
detailed and comprehensive manner over a certain period of time in order to form a proclamation
that is unlike from the “absolute truth” of positivism. Thus, post-positivists believe in a qualitative
approach to research methodological framework and explore the phenomenon from a
comprehensive perspective.
From what are analyzed above, it can be concluded that the most suitable philosophy for the
research is the qualitative method. There are two reasons for this selection. First of all, as the
purpose of this research is studying the provisions solutions for bad debts at a certain branch of
Vietinbank, the solutions for non-performing loans are decided and evaluated critically though
human logic and reasoning. As a result, the environments surrounding the studied problem are
interfered by human awareness, implying a subjective reality. Second, the phenomenon being
explored needs to be researched from many perspectives in order to get the final answers, for
example, the impacts of bad debts on the performance of the chosen bank and the dominant causes
of the debts.
3.1.2. Research approach
The second step in the building of a research methodological framework is the determination of
the research approach. Saunders et al. (2012) list two possible approaches that are often used by
researchers, namely deduction and induction. Deduction means that the researcher explores the
theoretical knowledge first to establish the possible “hypothesis” and then define the “precise
measurement” to find the empirical evidences that will be used to test against the hypothesis
(Parker, 2000). In this approach, it is the theory that guides the research (Saunders et al., 2012).
Deduction is associated with the philosophy of positivism.
Induction is a research process that is opposite to deduction. The final results of the research are
developed based on the information and data gathered, meaning that the concluded theory is guided
30
by the research (Saunders et al., 2012). Post-positivists usually use deductive approach for their
research.
After comparing the two approaches and taking into account the research philosophy employed
(the post-positivism), the deductive approach is chosen. The research will happen according to the
following procedure:
Figure 5: Deductive of the research
Source: 2012books.lardbucket.org
The first, we went to collect data from Vietinbank - Ha Noi Branch East and interviewed deputy
director of Vietinbank – Dong Ha Noi branch. From these data we apply to the formula of bad
debt ratios, profitability from credit operations of banks and then to make comments, reviews.
Based on all the solutions for solving bad debts of the branch was used and data were calculated.
Finally, we will provide the solutions of bad debts and reviews, recommend the group for this
branch.
3.1.3. Research methods
There are various research methods, but they are generally categories into two groups: the
quantitative methods and qualitative methods. According to Saunders et al. (2012), the quantitative
methods emphasis on measurable objectives and numerical analysis of data collected through
polls, survey, questionnaire, etc., while qualitative methods are related to the analysis of various
data gathered from a variety of sources to find and group the common patterns found among those
data. The appropriate methods for this research are the qualitative and quantitative as these can
help to investigate various problems around the studied phenomenon to get the patterns that can
be used to develop the final generalization.
According to the quantitative approach, our research used the figure, the data collected from the
bank and interviews applied to the formula of bad debt ratios, profitability ratios from credit
operations used, quoted from the document, the authors research the masters and doctoral research
in the banking sector in the world. In addition, qualitative methods, research from sources such as
31
journal, newspapers and then we draw conclusions and solutions for solving bad debts for this
branch.
3.1.4. Research strategy
There are many research strategies. The table below lists the most widely-used strategies and links
them to the type of the research:
Type of research
Research Strategies
Experiment
Quantitative research
Survey
Archival research
Case study
Ethnography
Qualitative research
Action research
Grounded theory
Narrative inquiry
Table 3: Research strategy
Source: Saunders et al. (2012)
Because the research employs the post-positivism philosophy, inductive approach and qualitative
methods, it is going to be mainly associated with both numerical and non-numerical data to deliver
the final answers for the research questions. Therefore, the most suitable strategy for this study is
the grounded theory combined with the case study. This mixture of strategies will help the
researcher to investigate the phenomenon very deeply and draw a full picture of the status of
solving bad debts at the branch of Vietinbank.
3.1.5. Time horizons
The next step in setting the methodological framework is choosing the appropriate time horizons
for the study. The research can be implemented according to a cross sectional or a longitudinal
32
time frame (Saunders et al., 2012). If the researcher observes the phenomenon at a “snapshot” time
horizon, it would be called a cross-sectional research. On the other, if the research is studied from
over a certain period of time as like the researcher is doing a “diary” observing perspective, the
longitudinal study is called upon. The problem of bad debts and its solution at Vietinbank needs
to be analyzed and observed deeply over a during a certain time range, so the longitudinal is the
most suitable. This time range has a big capacity and capability to study the change and the
development of the phenomenon (Saunders et al., 2012). The selected time frame is from 2008 to
the second quarter of 2014.
3.2. Data collection method
3.2.1. Sampling technique
According to Saunders, Lewis and Thornhill (2012), for all research questions where it would be
impracticable for you to collect data from the entire population, you need to select a sample. This
will be equally important whether you are planning to use interviews, questionnaires, observation
or some other data collection technique.
There are two kinds of sampling technique: Probability (representative sampling) and nonprobability sampling (judge mental sampling). With probability, every unit of the population can
be the sample (greater than zero) and usually equal for all cases, so it is possible to answer the
research questions and to archive objective that require you to estimate statistically the
characteristic of the population from the sample. For non-probability samples, the probability of
each case being selected from the total population is not known, so that it is not possible to answer
research questions or calculate accurately the probability of selection.
In our thesis, ”we chose non-probability sampling technique, because our research doesn’t have
enough data of all population”. We use the case of Vietinbank to estimate the impact of solutions
in resolving non-performing loans. The research base on the financial statements of Vietinbank in
recent 4-year period of time and some interviews with employee of the bank
3.2.2. Primary data collection
Collecting data following primary data method will have many ways. In this research, we use the
way to interview the manager of Vietinbank – Dong Ha Noi Branch. We prepared some questions
to the manager and get information about the solutions in resolving non-performing loans the
branch is using and the impact of each solution.
33
3.2.3. Secondary data collection
In our thesis, documents and multiple sources will give for us secondary data. ”We have been
granted access to the annual reports, financial statements of the bank, books, journals and other
information about solutions to resolving non-performing loans and the organization performance
which shows the effective of solutions”. ’Accompanied with tertiary data, researchers can use
secondary data to figure out useful ratios thus find out the real situation of profitability Vietinbank
after apply the solutions to resolving non-performing loans?’
3.2.4. Data characteristic
Table 4: Data Characteristic
3.3. Data analysis method
3.3.1. Primary data analysis
In Primary data analysis,’ we use the semi-structure individual interview. The questionnaire used
for interviewing mainly focuses on the situation of Vietinbank after applying solutions to solving
34
non-performing loans.’ The answers and response of the interview will be used to analyze the
effective of solutions in resolving bad debt, or advantages and disadvantages of each solution. The
interviews are very important because the interviewees is the employers who have experiences in
banking and have certain knowledge about the Viettinbank’s situation , therefore can give their
useful ideas about the issue.
3.3.2. Secondary data analysis
In secondary data analysis, researchers will use annual reports, financial statements of Vietinbank
after applying solutions to resolving non-performing loans, journal articles and other reliable
sources such as books and case study, to analyze the actual situation of Vietinbank before and after
applying solutions. ”Some typical ratios such as NIM, ROA, ROE and so on which will be
analyzed carefully to answer the question about the impacts of NPLs and effective of solution to
solving NPLs.”
3.4. Limitations of the research
We prepared carefully in processing dissertation, however, this thesis had some limitations in this
research. Firstly, due to the regulation of protecting confidential information of Vietinbank, it has
caused some problem for the thesis’s writers in accessing to data related to resolving NPLs of the
bank. Besides, the research almost uses the secondary data, which comes mainly from the annual
report, financial statement of Vietinbank, the bank website and other reliable sources. This may
cause some bias for the research, especially in Vietnam, banks usually have the tendency to make
a good report to hide some bad situation, and NPLs is one of the most data which banks want to
reduce, so it can impact to the research’s result.
Secondly, the primary data also can cause some biases, because of the ideal of the interviewee,
who is employee of the bank, so it can impact to the information which researchers gained. In
addition, with the important role of interviewees in the bank, they can be sensitive to the question
about the real situation of NPLs or they will hide some information that can harm to the bank’s
image.
35
3.5. Ethical considerations
There are two ethical issues with this research, namely the access to information and data and the
privacy of private information. In this research, the researcher seeks to get primary data through
the face-to-face interviews about significant information about bad debts, a sensitive topic at any
banks, with some important figures of the chosen branch of Vietinbank. There would be resistance
from the managerial staffs of the bank, as they may not have a clear perception of the research and
the people who are conducting it. They might not want to take risks and grant the permission to
carry out the interview (Saunders et al., 2012). Therefore, in order to prevent this from happening,
a letter with full and detailed information about the research, especially the research objectives and
the kind of access to data needed, would be composed and addressed to the right person at
Vietinbank.
The second ethical issue with this research is the guarantee of the privacy of information. All
information and data must be reported accurately and honestly and kept highly confidential. No
third party besides Vietinbank, the people who conduct the research and the school which will
review and mark the study will know the existence of these data. The gathered data would be only
used for the objectives stated in the letter sent to Vietinbank before.
3.6. Conclusion
In the main, the chapter helped understand the methods we used to research such as philosophies,
approaches, methods, strategies, time horizon, data collection method and data analyze method.
Besides, we have used research methods post-positivism (includes pragmatism and interpretivism)
according to research, at the same time refers to ethical issues and the limitations of the research
stage theme.
36
CHAPTER 4: FINDINGS AND ANALYSIS
4.1. Introduction
In this chapter, our research conducts will be conducted to analyze the solutions for the case of
Vietinbank - Dong Ha Noi branch in detail. This chapter concludes two main sections. Firstly, our
research would take a glance the status of non-performing loans in VietinBank and five other banks
such as Sacombank, Military Bank, Techcombank, BIDV and Vietcombank. The next section
would be discussed deeply about the non-performing loans of VietinBank and Dong Ha Noi
Branch. In particularly, research would analyst some causes and application of solutions which
mentioned in the previous chapters. Finally, some significant results would be predicted in this
section.
4.2. Non-performing loans in Vietnam banking system
The bar chart below illustrates the status of non-performing loans in Vietinbank system from three
recent years. All of the data are based the financial reports in official website of Vietinbank. This
chart includes three types of non-performing loans following the No. 18/2007/QD-NHNN. It can
be seen that the total non-performing loans soared from the period of 2011 to 2012 then slightly
decreased after that. In 2011, only 2,204 billion VND is non-performing loans but it was double
in the next year, 4,889 billion VND. In 2013, the figure shows the downward trend of nonperforming loans, 3,770 billion VND at the end of this year. This chart also pointed out the high
contribution of level 5 (Potentially Irrecoverable Debts) and level 4 (Doubtful Debts) into the total
non-performing loans. This shows us the serious evidence of the NPLs’ status.
37
Figure 6: VietinBank NPL status, unit: million VND
In order to know more about how seriously of Vietinbank NPLs’ status, our research conducts to
compare with five other banks’ NPL. They include two big banks: Vietcombank, BIDV and three
small banks: Techcombank, Military Bank and Sacombank. This would show us a benchmark to
measure the extent of non-performing loans in Vietinbank.
According to the information in the chart below, it is obvious that BIDV had the highest nonperforming loans. The figure reached a peak in 2012 at 9,160 billion VND. Although this trend
could not be continuously increased in the future, the number shows us the hard situation of NPL
in this bank. The second highest value of NPL is Vietcombank. Both of these banks are big banks.
Therefore, it is easy to understand that the high number of non-performing loans. In fact that
Vietcombank suffer the lowest number of NPL in 2011, 4,275 billion VND. From that, there had
a steadily upward trend of NPL. In 2013, NPL of Vietcombank reached a peak at 7,475 billion
VND. In both contexts of banks, the increase was caused by the increase of NPL level 5
(Potentially Irrecoverable Debts).
In three resting banks, the number of NPL was quite small compare with two banks above. It
rounded at 1,500 billion VND. In comparison, Sacombank accounted for the smallest number of
non-performing loans. In 2013, it was just 1,609 billion VND that was down from the highest
number in 2012. Techcombank and Military bank shared the same pattern of NPL. They all had
uptrend over the years. Among that, the increasing number had the most contribution of NPL level
5
38
All in all, Vietinbank’s NPL status was the middle of these banks’ situation. It would suffer a hard
time when the bank has the huge number of NPL in banking system. However, Vietinbank was in
better situation compare with two other big banks.
Figure 7: Comparing NPLs status of 5 banks
Case study is a type of research methodology which investigate depth about individual, a group,
an event, a situation to show causes and from that find out basic principles
4.3. Non-performing loans index calculations
4.3.1. Overdue ratios:
Overdue ratio of Vietinbank (2011) =
Overdue ratio of Vietinbank (2012) =
Overdue ratio of Vietinbank (2013) =
Overdue balances
Total loan
Overdue balances
Total loan
Overdue balances
Total loan
39
*100% =
*100% =
*100% =
3.211
2140
= 0.15 %
65.771
= 2.74 %
2398
14.931
2607
= 0.57 %
4.3.2. NPL ratios:
NPL ratios (2011) =
NPL ratios (2012) =
NPL ratios (2013) =
Non performing loans
Total loan
2
*100% = 2140 *100% = 0.09%
Non performing loans
62.469
Total loan
2398
*100% =
Non performing loans
13.188
Total loan
2607
*100% =
*100% = 2.6%
*100% = 0.51%
4.3.3. Non-performing loans/ Total overdue debt ratio:
Non − performing loans⁄
Total overdue debt ratio (2011) =
2
Non performing loan
Total overdue debt
x 100%
=
*100%= 62.29 %
3.211
Non − performing loans⁄
Total overdue debt ratio (2012) =
Non performing loan
Total overdue debt
x 100% =
62.469
*100% = 94.98 %
65.771
Non performing loan
13.188
Non − performing loans⁄
Total overdue debt ratio (2013) = Total overdue debt x 100% = 14.931
*100% = 88.33 %
Because of economic crisis and the policy of Vietinbank – Dong Ha Noi branch, non-performing
loan was solved, mitigation and recovery of bad debts in 2010. Bank had overdue credit card but
it was not significant. In 2011, Vietinbank had a bad debt group 3 of Phuc Hai Company with loan
was 2 billion VND. It was only account for 0.09% total loans.
There were non-performing loan spike in 2012. 62.4 billion VND of bad debt group 4 was data
research in Vietinbank- Dong Ha Noi branch. It was account about 30 times in 2011 (2.6 % nonperforming loan). But according to the data of bank, 62.4 billion VND was bad debt of 5
companies: 89 Department of Defense company 39.7 billion, MTV Mai Dong limited liability
Company 11 billion and other company. Cause of bad debt was the economic crisis and the
competitive market, their company was trying to hold out and get rid of bad debt but in 2012, the
operations of the company cannot compete and survive in the market. This situation, bank
management has taken measures to solving bad debts and recovery loan.
Although the managers of VietinBank had to settle to solve bad debts which non-performing loan
surge of 2012 and other overdue debts, their non-performing loan was still high. Non-performing
loan was 7.4 billion in group 3, 8.4 billion in group 5 and more 1 billion overdue debt.
40
4.4. Provision loan loss of Vietinbank – Dong Ha Noi branch.
In this section, our research would present the panorama picture of PLL. In particular, we would
research some aspects of PLL such as its definition, functions and the current situation in this
branch.
According to No. 18/2007/QD-NHNN, Loan Loss Provision is an expense that is reserved for
defaulted loans or credits. In other words, loan loss provision could be understood as amount of
money that would cover the future loss on loan defaults up. Therefore, this expense would be
calculated their pre-tax incomes. In fact this solution would use all banking systems over the world.
Vietinbank – Dong Ha Noi branch strict implementation of loan classification and provisioning
implementation of credit risk matching with current regulations of the State Bank and Vietinbank
headquarter. Currently, its branches provision of credit risk by decision 493/2005/QD-SB, decision
18/200/QD-NHNN amending decision 493/1005/QD-NHNN. The rate of the general provision
was 0.75% of total loans at the bank. The level of specific provision based on the risk level of each
loan on the principle of risk as loans, the rate of higher provisioning.
(Unit: million)
General Provision
2013
2012
2011
0
5000
10000
15000
Figure 8
41
20000
25000
(Unit: million)
Rate
2011
2012
2013
Group 1
0
0
0
0
Group 2
5%
0
48
7
Group 3
20%
400
0
941
Group 4
50%
0
31,234
0
Group 5
100%
0
0
8,479
Table 5: PLL of Vietinbank – Dong Ha Noi branch
The table above showed us the situation of loan loss provision of Vietinbank – Dong Ha Noi
branch in 3 years. As can be seen, in 2011, the general provision was 16.05 billion VND but the
bank only had a bad debt group 3 with provisioning loan loss was 400 million VND. In the first
six months of 2012, the general provision was about 17 billion VND, however, in the next months
of the same year, the bank must propose more money to cover about 31.3 billion VND for bad
debt of Group 4. In 2013, with fixed provision of year, there was a bad debt of Group 5 but it was
not included in the provision that the debt should be transferred to the group asset disposal.
4.5. The process of resolving bad debt in Vietinbank – Dong Ha Noi branch
4.5.1. Reasons of bad debts
The reasons why Vietinbank suffered the high ratios of non-performing loans is defined into 2
main types. One type came from the bank and another came from its customers. Consequently, It
was easy to borrow money and then hard to return the capital of customers. That led the high
ratios’ situation in banking system.
In fact, the mistakes began from all levels in the banking systems of Vietinbank. Almost employees
and also top managers have the undue optimism with loans, especially the mortgage loans. The
employments of bank put too much confidence in the payment of customers. The branch managers
tried to reach higher achievements to prove ability to top managers. That led the mistakes in
processing in evaluating and approving the loans and collateral assets. Besides, there were some
factors involving the raise of non-performing loans. One came from the varying the interest rate
of Vietnam State bank due to the difficulty of real estate market last 2011 and quarter 1, 2012.
42
Another reason was from the customers. Because of easy-period-of-time to borrow money
companies wasted capital in false purposes. Even some firms did not provide trust information to
borrow money in the bank for others purposes. At the end of scenario, our economy was collapsed,
that led the enterprises did not return money for bank.
4.5.2. Management process and handling of debt in Dong Ha Noi branch.
-
Step 1: Finding loans have problems and classify
Based on the signs of the loan: loan classification and examination of financial statements and
transactions of customers…
Banks need to meet customer’s detection problem loans. Credit officers understand exactly the
nature debts, liabilities classified into groups corresponding liabilities for timely remedial
measures and check the amount that banks need money for provisioning.
-
Step 2: Checking debt issues file
Credit offices check credit documents of customers, loan process, loan repayment and operation
of customer. Then, they need to submit reports on the track to get a loan, the proposed measures
to supplement the information in case the loan documents flawed records and legal elements of
the record does not guaranteed.
-
Step 3: Revaluating about collateral
Prescribed by Vietinbank – Dong Ha Noi brach, the loan is secured by collateral greater than 2
billion VND is needed through a company valuation. Vietinbank AMC is a company help
Vietinbank calculate the value of collateral. Banks need to revalue collateral frequently prescribed
loan security, make reports to additional collateral in case the value of the collateral is reduced
which cannot afford to guarantee clause borrowing.
-
Step 4: Meeting and discussing with buyer default
Credit officers show and provide necessary information to the appropriate treatment measures:
financial statements, business plans, specific measures to overcome rolling, scheduled repayment
and source of repayment. Bank meet customer and brainstorm solutions: reducing debt, increase
collateral, rapid decrease in inventories, debt collection…
-
Step 5: Building and approving of the plans for bad debt
43
Debt Settlement Plan measures to debt settlement. Depending on the situation of production and
business activities, repayment capacity of the customer to have the debt restructuring plan or
ending loans. To get a debt settlement method requires effective cooperation between the bank
and the customer.
-
Step 6: Implementation plan of non-performing loan
Giving details about handling debts plans after superiors approved, credit officer perform
following plan. If superiors did not approve with that plan, banker will continue giving other plans
efficiency for those bad debts
-
Step 7: Saving the files
Bad debts settled completely. Banker and branch will save the files and documents related those
non-performing loans
4.5.3. Solutions of Vietinbank – Dong Ha Noi
a. Executing short-term assets
Short-term assets of the customer's assets are owned and managed business, with duration of use,
transfer, withdrawal of capital in a business cycle or one year. Short-term assets can exist in the
form of money or in kind (materials and goods), in the form of short-term investments and accounts
receivable. Short-term assets of the business including: cash; investments in short-term financing;
receivables; inventories and other current assets. Short-term assets are assets group have high
liquidity, can be easily converted into cash, the bank can be easily recovered to compensate for
bad debts, overdue debt. This is a simple debt recovery.
b. Collateral liquidity
-
Customer will sell collateral
In principle, if the customer does not repay the debt maturity structure of the debt is not and no
source of repayment, the bank may dispose of collateral to collect the debt as agreed in the contract
and regulations law. However, the self-processing bank collateral for debt collection may
experience some problems and incurred certain costs unnecessarily affect the ability of bank debt
collection, so, in order to create conditions for customers and bank loans resolved quickly, bank
customers can handle the security property under the control of the bank. This method will help
both parties are not subject to the other expenses during.
-
Bank will sell collateral
44
Collateral liquidity is a concept referring to the repayment ability of bad loans base on the
guarantee assets. In other words, a non performing loan could be recovered apart or fully value
because of selling the guarantee assets. The more valuable of guarantee assets, the higher loans
could be recovered. Collateral liquidity has an important role in backup loans. A loan was
guaranteed by a property that pledged by credit institutions would be execute quickly. When loan
got trouble because of risks or effectiveness, that loan would return by selling assets instead. This
is one of the reasons why the level of non-performing loans plummeted to over 13 billion VND in
2013. In theory, 100% loans would be secured by guarantee assets in Vietinbank’s system. But in
fact, it was not exactly 100% at all.
4.6.
Case study
4.6.1. Case study 1: Solving non-performing loans in Phuc Hai Company.
a.
Introduction about the company:
This example talked about Phuc Hai Company which is SMEs (small medium enterprises), with
fewer capital and employees Phuc Hai Company was a corporation buying and selling mobile
phone, sim and card. This company had a store in Yen Vien street, Gia Lam district, Ha Noi. They
started working on 7th July 2011.
b.
Credit relationship between Vietinbank – Dong Ha Noi branch and Phuc Hai company
Phuc Hai Company has started to borrow from VietinBank – Dong Ha Noi branch since 24th July
2011. It demanded about fund to buy sim cards of mobile phones and uses a land with 99 m2 to
mortgage property. In this time, industry business was highly profitable about 35% and company
had a reasonable business plan. Phuc Hai Company was a new corporation so profit from
operations was loan repayment. When customers need a loan to buy sim card payment for every
purchase of the Viettel Company, credit officers have full confidence in the purchase agreement
with the company's two corporate Phuc Hai and Viettel and did not verify the riskiness of the loan
After 3 months, the loan had a problem. Corporation was consecutive delayed paying interest and
principal on the loan. The loans dropped in to group 4 bad debt, which cost nearly 2 billion VND.
c.
Causes of bad debts:
After finding and researching why business stopped pay loan and interest for bank. This situation
can be explained by considering and deciding for borrow of credit officer and Phuc Hai company.
-
From the bank:
45
+ Loan officer was wrong in courting about this company about financial reports
.Especially, profit each month of company which this banker calculated and found capital turnover
of Phuc Hai was 5 rounds per year. That means minimum time to pay all loan and interest for
Vietinbank in two and an half months. Loan rate and loan term are unreasonable.
+ The credit management of bank was not tight. So Loan term for this loan is 6 months
while turnaround time of capital is only less than 3 months. The re-inspection use of capital is not
frequent and accurate. And Phuc Hai company had much money and they did not pay for bank
because loan term not yet.
+ From changing of interacts of Vietnam State bank because of difficulty in real estate
market last year 2011 and quarter 1, 2012
-
From the customer (Phuc Hai company)
+ Wrong purpose for using capital: From having much money in accounts after receiving
from selling sim, card, and mobile phone, company used them to invest in other business (real
estate). In 2011, real estate was bringing large profits. But in quarter 4, 2011 and beginning of
2012, real property market in Vietnam was freeze. Because in determining number 11 of Vietnam
government about solutions to restrain inflation, macroeconomic is stable, credit organizations
decreased less speed and proportion in non-production loans than 2010, such as securitization and
real estate. In Vietnam economy magazines, from January to June 30th, 2011, a loan to total loans
was 22% and December 31st 2011, this maximum number is 16%. And immediately, all banks
manage credit closely with real estate and improve loan interest rate.
+ Supplying information about contract between Viettel Company and Phuc Hai Company
was not clearly
+ Vietnam economy in 2011 was poor. It makes State bank and banks in Vietnam carried out
interest rates policy about deposit and loans
d.
Results:
After this company was in group 4 bad debts, Vietinbank started settling and selling
successful mortgages of company to withdraw capital and interest
4.6.2. Case study 2: Solving Bad Debts Huy Hoang Construction Company
a.
Introduction about Huy Hoang Company
46
Full name of Huy Hoang Company was limited liability and commercial construction technology
Huy Hoang Company. This company was a corporation trading steel and other construction
materials. Their store was in Dong Anh district, Ha Noi. They start working in March 2009.
b.
Credit relationship between Huy Hoang company and Vietinbank – Dong Ha Noi
branch
Huy Hoang Company has started credit relationship with Vietinbank Dong Ha Noi branch since
May 2010. At this time, profits from business activities of the company returned 30% and the
company has proposed bank loan. Based on the percentage of assets of the owner and the business
activities of companies, Vietinbank Dong Ha Noi granted a limited loan was 1.990 million VND
to payment for purchases of suppliers. Source of repayment was from operating activities and this
loan was secured by land of third party. Steel business was a type of business had increased.
Although it has not had high profit, this was a huge market and the great demand.
After 2 years, company had stable operating, and profits had increased over the year, their credit
relationship with bank still hold. In July 2013, their company had 3 borrow with total loan was
1.800 million VND. They delay repayment for this loan and company was included in delinquency
group 1. Because of customer receivables unpaid, the company proposed changes in the repayment
period to January 2014. Although the company was still operating normally, they could not
payment loan.
c.
-
Causes of bad debts:
From the bank: In the process of appraisal and granting credit limited, credit officer was not check
carefully purpose of loan so property owners used capital for false purpose which maybe have
more risks. Because of that reason, bank did not control loan term.
-
From the customer:
+ Company was not to provide trust information about the purpose of loan for banker
+ Used not true purpose of loan capital
 Although Huy Hoang Company was doing business but Vietinbank – Dong Ha Noi branch realized
that company didn’t have to pay debts capability. In the same time, a part of capital in guarantee
assets used and did not retrieve competency
d.
-
Solutions of Vietinbank:
On March 19th, 2014, branch combined with Hoang gia investment and trade company auctioned
successful property with price was 1.770 million VND, forecast schedule withdrawing was on
April , 2014
e.
Results:
On September, 2014, banks celebrate very well to selling assets of Huy Hoang Company
in auction and withdraw all loan principals and interests
47
4.6.3. Case study 3: Viet Anh Import and Export Company
a.
Introduction about the company
Viet Anh Company was an import and export clothes hangers and steel business in domestic. The
business registers company for the first time in February 2009. The main type of business was
import and export clothes hangers. Viet Anh Company has expanded its business into the
production of steel industry in 2011. They had a factory in Quoc Oai, Ha Tay, Ha Noi and a store
in Ngoc Lam, Long Bien, Ha Noi.
b.
Credit relationship between Viet Anh company and Vietinbank – Dong Ha Noi branch
Viet Anh Company started loan with Vietinbank – Dong Ha Noi branch when their company has
just established. The total investment for the project was 10.30 billion VND of which Vietinbank
invested 5 billion VND. Vietinbank Dong Ha Noi granted a limited loan was 5 billion VND to
payment for purchases of suppliers. Because Viet Anh was a new company, Vietinbank had a
preferential such as interest rate in first 3 months was 11% and 12% in period.
In first 2 years, their import and export were developed; their profit increased 7% per year. In
2011, Viet Anh expanded activities into steel industry and suggested the bank to increase the
limited loan from 8 billion VND and 10 billion VND. In this time, cheap price of this product to
attract USA market and others policy made company into crisis. They delay repayment for this
loan and company was included in delinquency group 1 in 2012.
c.
Causes of bad debts:
Objectives reasons:
Viet Anh company which was producing clothes hangers to export to United States of America
(USA) .In first and second year, business of company was very well because large quantity and
good quality. In addition, cheap price of this product to attract USA market but after government
gave antidumping policy; products of company did not export. A portion product in USA and
partner didn’t liquidate .In other side, large amount in stock cannot sell. So company lost paying
debts in short term for banks
Subjective reasons:
The inspection and controlling before and after the loans was not good, not capture assessment
business situation of company to have a timely decision
d.
Solutions non-performing loans of Vietinbank – Dong Ha Noi branch:
o Propose customer pay on March 2014 with minimum money:4.000 million VND
48
o Besides, branch urge customer to complete debts and if without result, banks will send
indispensable papers for law enforcement agencies to support
e.
Results:
o On march 2014, Viet Anh company did not pay minimum debts (4000 million VND)
,banks commission from law enforcement agencies
4.7. Results of NPLs
-
Bad debts of bank increased, the cause is not due to banks as "author". At the time of 8/2012,
the system's bad debts were rising rapidly. According to the State Bank announced, bad debt of
Vietnam was 8.6%, equivalent to 202 trillion. These figures were equivalent to 10 billion real
concerns and affect the operation of the bank as well as the economy. 200 trillion not be put
into circulation on the market, be buried in the collateral will make a big waste for society, it
was more serious in the context of the economy was in difficult times like the present.
-
For banks, the NPL make credit system stalled, it makes bank lending could not continue,
though no lack of funds. Banks have to be more careful with loans to avoid bad debt, the result
was capital but banks were not lending money, the economy is still soft capital. In addition, bad
debts are affected directly to the bank. Bad debts directly affect the liquidity of cash flow and
reduce the profitability of the bank. In the context of economy stagnant, rising bad debts, bank
capital but also very shy in granting credit, fearing the loss of capital, time and effort consuming
resolve bad loans.
-
To the customer, the business needs to pay attention to the completion of the debt because if
customers have overdue or historical bad debt, they encountered many difficulties in borrowing
in next time.
4.8. Short-term and Long-term solutions:
From the case studies and solutions of Vietinbank, we will offer long term solutions and short term
solutions:
-
Short- term solutions: Banks should continue to sell and auction collateral sooner. Instead of
waiting those enterprises that are not running and make profit. Bank can avoid lost more
money in provision loan losses because lower bad debts group, this number will be bigger. In
addition, banker must observe and calculate clients in first debt group and second debt group
avoid falling into bad debts groups.
49
-
Long-term solutions: Selling non-performing loans for VAMC will be a long-term solution
of Vietinbank – Dong Ha Noi branch. Besides, bad debts of bank need depend on conditions
to sell for VAMC:
+ Bad debts of credit organizations, include in credit activities, buy corporate bonds and other
activities prescribed by the State Bank
+ Bad debts have collateral
+ Non-performing loans, collateral must be legitimate, value and valid documents
+ Borrowers must have clear identify
50
CHAPTER 5: CONCLUSION AND RECOMMENDATIONS
5.1. Conclusion
In this chapter, our research would be summarized in some aspects. First of all is the summary of
finding section. This concludes fully answers of research questions that mentioned in the previous
chapters. The next section would be the recommendation which dedicated for people and
institutions that are caring about the problems of non-performing loans. Obviously, in the process
of doing this research, it cannot be avoidable some limitations actually. In fact, some research
limitation also will mention in the following section. Finally, future research direction would be
the last section in this chapter. It provides some directions for researchers in the future.
5.2. Methodology and data analysis
In this study, researcher used pragmatism philosophy applying deductive approach, combine with
analyzing case study for research strategy. Our research had been applied deductive approach and
some methods which were incorporated of qualitative and quantitative research method, by this
way, researcher can have more convenient in collecting data and answering the research questions.
The data were collected based on the response from questions in the interview with the manager
of Vietinbank – Dong Ha Noi Branch (primary data), and the Branch’s annual reports, financial
statements, books, journals, other information about solutions to resolving non-performing loans
and organization’s performance (secondary data). In addition, we collected and analyzed some
cases which linked with the NPL situation of the Branch and solutions that were applied by the
Branch to solving problem. From the collected data, research can have clear view of the NPL
situation of Vietinbank – Dong Ha Noi Branch and can appraise the solutions (advantages and
disadvantages) which were applied by Branch to resolving NPLs. Finally, researcher can summary
information and propose some recommendation for the Branch.
5.3. Summary of the findings
In this part of the chapter, we will summary the findings to answer the research questions:

What are the main causes lead to bad debts at of VietinBank – Dong Hanoi Branch?

What are the effects of bad debts to the performance of VietinBank – Dong Hanoi Branch?

What are the solutions to solve bad debts at VietinBank – Dong Hanoi Branch?
51
Besides, we will make clearly the research objectives:
- The current situations of bad debts in Vietnam.
- The status about the bad debts problems of VietinBank – Dong Hanoi branch
- To see how VietinBank – Dong Hanoi branch deals with bad debt issue
- Proposing solutions suggested by researchers to deal with bad debts
Key Finding 1: What are the main causes lead to bad debts at of VietinBank – Dong Hanoi
Branch?
In recent years in Vietnam, the backlog of NPLs is a big problem for the economy. Non performing
loans ratio of bank system rose from 3.2% in 2010 reached to the peak of more than 8% in 2012.
In findings chapter, we gained and showed data about NPLs situation in five banks in Vietnam
with two big banks were Vietcombank and BIDV, three small banks were Techcombank, Military
Bank and Sacombank.
To cope with the problem of NPLs, the Government and State Bank of Vietnam had brought some
solutions such as: restructuring some weak and small bank (merge and acquisition), maintaining
the real estate market by a 30,000 billion VND – bailout, established VAMC to manage NPLs...
In chapter 2, literature review, we researched about solutions which were used to resolving NPLs
all over the world. By using many cases from some countries which have to deal with nonperforming loan problems such as: China, Thailand, Malaysia, Korea, and Japan…, we integrated
some solutions and compared the impact of each solution to resolving NPLs. By that way, we can
review the condition and analysis the effect of solutions to the economy system and their ability
to apply in Vietnam. Besides, with some solution were applied in Vietnam, researcher can compare
and propose some recommendation for the better performance.
In findings chapter, we did analysis the status and the reason of the NPLs in ViettinBank. In 2011,
only 2,204 billion VND is non-performing loans but it was double in the next year, 4,889 billion
VND. In 2013, we had downward trend of non-performing loans, 3,770 billion VND at the end of
this year, however, there was an increase in group of level 5 (Potentially Irrecoverable Debts) and
level 4 (Doubtful Debts) of NPLs. In case study of resolving NPL of the branch, we show the
impact of the NPL and solution of the bank for each case.
Key Finding 2: What are the effects of bad debts to the performance of VietinBank – Dong
Hanoi Branch?
52
In chapter 4, we analyzed and find out the impact of non-performing loans to the performance of
Viettinbank – Dong Ha Noi Branch, the increase of bad debt can effect to the liquidity of cash
flow and credit scoring of the branch, the NPL make credit system stalled, it makes bank lending
could not continue, though no lack of funds.
Key Finding 3: What are the solutions to solve bad debts at VietinBank – Dong Hanoi Branch?
To learn how to ViettinBank – Dong Hanoi Branch resolving non-performing loans, we researched
about the situation of NPLs in ViettinBank and some solutions to solve NPLs which the bank is
applying, there are two main solutions the bank is applying to resolving NPLs were provision loan
loss and collateral liquidity. With each solution, we gained and showed a case that ViettinBank –
Dong Hanoi Branch used to resolving problems and analyzed the result and the impact of the
solution.
In the thesis, we propose some solutions for Viettinbank – Dong Hanoi Branch to better
performance in resolving non-performing loans.
Firstly, the branch can using selling loans to VAMC (Vietnam Asset Management Corporation),
VAMC is a corporation was established by State Bank to resolving NPLs in banking system and
help economy. But the bank need some suitable conditions to selling NPLs to VAMC.
Secondly, the branch can use the solution of equity participation, by the way transfer of loans into
shares, the branch can decrease NPLs and become company’s shareholder. But this solution need
good analysis about the company which the branch want to become share holder and this solution
can’t be reduce the risks that the branch have to cope with, it just transfer credit risk to investment
risk.
5.4.
Recommendations
5.4.1. From researchers
- Find all measures to liquidate collateral for bad loans to recover those debts
- More effective to connect customers which have non- performing loans through restructuring or
reschedule about repayment period but only with customers who are temporarily difficult about
financial and have opportunities back to business when bad debts solved. In addition, continuing
to decline interest rates down to make new loans to help companies reduce cost of inputs which
not less than the price of bank capital and accordance with the policy interest rate of the State
Bank, sales to have conditions to pay the bank loans.
53
- Selling debts for Vietnam asset management company (VAMC) which was established and
operated according Decree No 53/2013/ND-CP of the Government. Decision No.843/QĐ- TTg of
Prime Minister and decision no .1459/QĐ- NHNN of Vietnam State Bank. Vietinbank – Dong Ha
Noi branch will have more advantages when selling debt for this company because they can
quickly find other companies to sell the property and after that maybe recovering capital of banks.
But banks want to transferring the debts for VAMC, they need build mechanism debt trading clear,
transparent and especially supervision from State Bank to avoid balance sheet of banks have less
bad debts about numbers but quality won’t change because original problems are not solved.
- Besides, banks may stop bad debts from business or individuals such as:
Reviewing loan classification, this process based on international rules. To do this, banks need
complete the system of credit ratings follow Basel II. Credit ratings must be according to the
historical statistics of banking when exchanging with customers.
- In the other way, branch can use equity participation. A form transfer loans of bank to equity
joint stock in business. It only transfer risk from credit risk to investment risk. In fact, NPLs ratio
will down but the rate of financial risk will increase but that is better solution when bank can’t
collect capital and interest from businesses. And we need attention in points:
+ Be placed in overall strategy, business plan of bank in each period
+ Secondly, the nature and degree of risk from bank’s capital at the enterprise cannot change much
when banks can’t withdraw funds immediately, in addition, more expense for additional cost in
transition. In the other side, bank are shareholder of this business so they will tend in favor of this
client than the others about borrowing and taking care in loans, maybe more bad debts from this
enterprise. So bank should have scenarios changes in parallel with strategies and plans
+Thirdly, checking about business before giving price to buy share. That enterprise can produce
and work or cannot. And banker must calculate carefully and details about stock prices which rise
or down in stock market because banks may lose more capital because stock prices down deeply.
+ Finally, banks are as an advisor. They find other partner to help to restructure the organization
of operating and business
54
5.4.2. From Vietinbank – Dong Ha Noi branch:
Banks used sell collateral to solve almost bad debts through the auction for third side. Besides
balancing balance sheet, banks must be use provision loan losses
5.4.3. From Vietnam State Bank:
According to the governor, the State bank will focus on directing the implementation such as:
-
To direct banks carefully about implementing the classification of assets, provisioning
methodology in order to evaluate more accurate than non-performing loans for
commercial banks follow new standard about bad debt to have right solution
-
Secondly, enhancing the inspection, monitoring and independent auditing of credit
quality, non-performing loans. To resolutely apply solutions for banks if they are not
clear, honest about bad loans and not to strictly implement the solving bad debts
-
Thirdly, researching, constructing and submitting to the Government Decree amending
and supplementing Decree No.53/2013/ND-CP about organization and operation of
VAMC (Vietnam asset management company) towards: add more power and take the
initiative for VAMC about settle NPLs, deploy step by step buying and selling bad
debts under market mechanism and finally, research for VAMC financial resources to
purchase bad debts and deployment activities such as underwriting, investment and
support the capital for customer loans who complete investment plans are realizable.
-
Fourth, connecting with ministries and agencies to quickly complete the improvement
of the legal framework on the purchase, sale, collateral, and give VAMC will become
a special tool of the State Bank to faster solve the NPLs
5.5.
Research limitation
There are some limitations that we encounter when doing this research. Firstly, time horizons are
three years, we have about three months to study and we are not enough time to compete general
information. Because of the complexity of the topic, the sensitivity of data and the limitations as
all previous studies, it is also about the difficult in interview process and finding data. ”The quality
of data and our study depends on the perception of the interviewer with topic; although they may
be willing to participate, the sensitive of some question which real activities of the bank”. The
interviewer’s bias is affected by the form of interviews and their job.
55
In addition, the lack of period research about the solution of resolving non-performing loans at
Vietinbank – Dong Ha Noi, there is not foundation information about research problem. The
method of solving bad debt of banking system in Vietnam is passive and too steps, some good
solutions when researching in over the world may not applied in Vietnam.
5.6. Future research direction
This research is only about the non-performing loans in a branch of Vietinbank – Dong Ha Noi
branch. Therefore, the solutions in this research would be applied only for other branches. The
researchers could conduct researches based on reference of these solutions to find out the
reasonable solutions for other specific branches. Another future research direction is doing
researches NPLs problem for whole banking system of a bank. Moreover, this research would be
helpful for the research other topics involving the making policies for regulators in Vietnam.
56
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59
APPENDIX
NGÂN HÀNG TMCPCT VIỆT NAM
CHI NHÁNH …………………
PKH/PGD/Phòng(Tổ) QLNCVĐ/QLRR
CỘNG HÒA XÃ HỘI CHỦ NGHĨA VIỆT NAM
Độc lập – Tự do – Hạnh phúc
_________________________________________
..., ngày .. tháng … năm …
PHƯƠNG ÁN XỬ LÝ NỢ
NỢ NHÓM … /NỢ XLRR…
Kính trình: - GIÁM ĐỐC/PHÓ GIÁM ĐỐC PHỤ TRÁCH
- BAN XỬ LÝ NỢ CHI NHÁNH …
Căn cứ tình hình thực tế và khả năng trả nợ của khách hàng ….. vay vốn tại
NHTMCPCT chi nhánh ………, Phòng Khách hàng…/phòng Giao dịch …/phòng - Tổ
Quản lý rủi ro/Nợ CVĐ đã tiến hành kiểm tra hồ sơ, đối chiếu với quy định hiện hành và
kính trình …. xem xét, phê duyệt phương án xử lý nợ đối với khách hàng ………….. như
sau:
1. Tên khách hàng: …………...
- Địa chỉ: …………….
- Giấy phép thành lập; giấy phép kinh doanh; ngành nghề KD (nếu có) …
2- Tình hình quan hệ tín dụng với Chi nhánh…
- Ngày vay …, hạn trả nợ …;
- Số tiền vay: ……….. đồng;
60
- Mục đích vay vốn: ……..
- Tình hình trả nợ:
+ Số tiền đã trả nợ: ………. đồng (nợ gốc); ………. đồng (nợ lãi).
+ Số tiền chuyển nợ quá hạn: ….. đồng.
+ Ngày chuyển nợ quá hạn: …., nguyên nhân chuyển nợ quá hạn: ……
- Dư nợ đến ngày …./…./ …..:
+ Nợ đang hạch toán nội bảng: … (gốc, lãi) đồng.
Phân loại nợ tháng …/200…: nợ nhóm….Số dự phòng cụ thể đã trích: …. đồng.
+ Nợ đang hạch toán ngoại bảng: … (gốc, lãi) đồng.
NHTMCPCTVN đã xử lý rủi ro theo Quyết định số ….. ngày …/…/… (đối với nợ
XLRR đang theo dõi ngoại bảng); Nợ được xử lý bằng nguồn Chính phủ theo Thông báo
số … của Tổng giám đốc ngày …/…/… (đối với nợ Chính phủ cấp nguồn xử lý đang theo
dõi ngoại bảng).
TSBĐ (nếu có): Tên TSBĐ: ….
+ Giá trị TSBĐ (theo biên bản định giá gần nhất ngày …. ):
+ Nhận xét về tính pháp lý của hồ sơ TSBĐ: …
+ Hiện trạng TSBĐ, khả năng phát mại, thời gian, số tiền thu từ bán TSBĐ ….
3. Tình hình tài chính của khách hàng và các biện pháp chi nhánh đã áp dụng
để thu hồi nợ:
* Tình hình SXKD, tài chính của khách hàng (số liệu có đến ngày gần nhất):
- Đối với khách hàng là tổ chức kinh tế (căn cứ vào số liệu trên quyết toán đến ngày
gần nhất)…. . Hiện tại, khách hàng ….: SXKD như thế nào?/đã ngưng hoạt động/ ….
- Đối với khách hàng là cá nhân, hộ gia đình: (căn cứ vào số liệu sổ sách, làm việc
cụ thể với khách hàng) …. .
61
- Khả năng trả nợ từ SXKD: …, thời gian trả nợ …
* Các biện pháp đã áp dụng để thu nợ:
- Đôn đốc thu hồi nợ … (liệt kê số lượng và ngày tháng các Biên bản làm việc, công
văn đôn đốc).
- Đề nghị cơ quan chủ quản hỗ trợ trả nợ: Biên bản, công văn (nếu có).
- Xử lý TSBĐ: ………..(nếu có)
- Khởi kiện…………(nếu có)
- Những khó khăn, vướng mắc trong việc xử lý thu hồi nợ: …………..
- Các biện pháp khác (nếu có): ………..
- Thiện trí của khách hàng trong việc trả nợ ngân hàng: ………
4. Đề xuất phương án xử lý nợ
Căn cứ: hồ sơ vay vốn, hồ sơ tài sản bảo đảm, tình hình SXKD và khả năng tài chính
của khách hàng, khả năng thu hồi nợ, lợi ích ngân hàng thu được từ mỗi phương án xử lý;
đối chiếu với quy định tại bước 5 điểm 7.1 Quy trình Quản lý và xử lý nợ có vấn đề
(QĐ.37.01), CBTD/cán bộ quản lý khoản nợ đề xuất phương án xử lý nợ tổng thể bao
gồm một hoặc một số biện pháp xử lý nợ cụ thể trình Ban lãnh đạo phê duyệt.
Cho vay thêm và/Bổ sung TSBĐ và/Cơ cấu lại thời hạn trả nợ và/Khoanh nợ
và/Chuyển nợ quá hạn và/Xử lý TSBĐ và/Giảm miễn lãi và/Bán nợ và/Khởi kiện và/Đề
nghị phá sản doanh nghiệp và/Đề nghị Nhà nước, Chính phủ cấp nguồn xử lý hoặc xoá nợ
và/Xử lý rủi ro và/Chuyển nợ thành vốn góp và/Các biện pháp khác.
Ví dụ:
Khách hàng A… Phương án xử lý nợ: kết hợp biện pháp cho vay thêm và bổ sung
TSBĐ.
Khách hàng B … Phương án xử lý nợ: kết hợp biện pháp xử lý TSBĐ, XLRR và
giảm miễn lãi.
62
Khách hàng C …. Phương án xử lý nợ: kết hợp chuyển nợ quá hạn và khởi kiện.
Khách hàng D … Phương án xử lý nợ: bán nợ….
Lưu ý: Mỗi biện pháp xử lý nợ cán bộ trình phải nêu rõ những thuận lợi, khó khăn
vướng mắc khi thực hiện, thời gian thực hiện và lợi ích ngân hàng thu được khi thực hiện.
Kính trình!
CÁN BỘ TRÌNH
(ký, ghi rõ họ tên)
Ý KIẾN VÀ ĐỀ XUẤT CỦA LÃNH ĐẠO PHÒNG
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
(ký, ghi rõ họ tên)
63
DẤU HIỆU CỦA CÁC KHOẢN NỢ CÓ VẤN ĐỀ
64
65
66
67
68
Appendix: Interview Mr Vu Trung Thanh - vice president of Vietinbank – Dong Ha Noi
branch
Q:”Can you give us some information about A: VietinBank – Dong Ha Noi Branch was
VietinBank – Dong Ha Noi Branch?”
established in 2001 which was a level II
branch under VietinBank Chuong Duong
bracnch. In 2007, Vietinbank – Dong Ha Noi
led to a level I branch under the Bank of
Vietnam. The headquarter was at 284 Ha Huy
Tap - Yen Vien - Gia Lam - Ha Noi. The
branch has 153 staffs, including 124 officers
who
have
college
qualifications
-
undergraduate up to 81% of the bank's staff.
Compared to state-owned banks and other
branches in the system, qualifications of staff
of the East Branch of Ha Noi are relatively
good.
Q:”Can you give us some overview about A: Bad debt is a big problem with both
bad debt situation at your branch?”
banking system and economy. It is the
consequence of economy crisis and it
Vietinbank also have bad debt. Although
increasing loan led to grow bad debt, in each
year, their branch have a target settle bad debt
so it is still in the control. In 2010, because of
economy crisis, their bank had handled
entirely bad debt. In 2012, there were sudden
loans about 62 billion VND fall in bad debt
but this bad debt treated stability.
Q: What about 62 billion bad debt in 2012?
A: In 62 billion, bad debt focused on 5
companies with large loans: 89 Millitary
company 39.7 billion, MTV Mai Dong
69
limited liability Company 11 billion and the
others.
Q: What impact of NPL in Vietinbank – A: Firstly, NPL impact to profit of our bank.
Dong Ha Noi branch?
It make our profit downward and the credit
scoring decrease. We need loan loss
provision.
Q:”To resolving with non-performing loans, A: We are using some solutions to solve bad
what did Vietinbank- Dong Ha Noi branch debt included debt restructuring, collateral
do?”
liquidation.
Q: Why their bank did not sell bad debt for A: VAMC is a good solution to solve bad
VAMC
(Vietnam
Company)?
Asset
Management debt. In this bank, they have policy to solve
bad debt of themselves so they can sell bad
debt for VAMC in the future. But our bank
need have conditions to sell for VAMC such
as:
+ Bad debts of credit organizations, include
in credit activities, buy corporate bonds and
other activities prescribed by the State Bank
+ Bad debts have collateral
+ Non-performing loans, collateral must be
legitimate, value and valid documents
+ Borrowers must have clear identify
70