Central Institute for Economic Management
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CENTRAL INSTITUTE FOR ECONOMIC MANAGEMENT
HA VAN DUONG
STATE MANAMGEMENT IN DIVERSIFICATION OF CREDIT ACTIVITIES OF COMMERCIAL BANKS IN HOCHIMINH CITY TO THE YEAR OF 2020
Major : Economic Management Code : 62 34 04 10
DOCTOR OF PHILOSOPHY THESIS
HANOI – 2013 THE THESIS IS COMPLETED AT THE CENTRAL INSTITUTE FOR ECONOMIC MANAGEMENT
Supervisor: 1. Nguyen Manh Hai (PhD) 2. Le Xuan Sang (PhD)
1ST critic: ……………………………………………… …………………………………………………………….
2nd critic ……………………………………………… …………………………………………………………..
3rd critic: ……………………………………………… …………………………………………………………….. (Name, science position)
The thesis will be defensed at the Evaluation Coucil at Central Institute for Economic Management on ….. /dd/mm/yyyy
The thesis could be found at: The library of Central Institute for Economic Management The national library, Hanoi 1 FOREWORD 2 1. Motivation of the Study Credit activity of the banks in general and of the join stock banks in the area of Ho Chi Minh City (HCMC) in particular have an important contribution to economic growth health and poverty alleviation through providing capital to the economy, boosting investment, creating jobs and implementing social welfare. With the important role of bank credit, the safety, health and efficiency of the system of finance institutions (FIs) is an important factor for stability of the national financial system and the macroeconomics. However, due to the impact of the financial crisis spread around the world comes from the rapidly developed financial markets with the new model, business activity, the variety of complex financial products, involves greater risk; management framework and banking supervision as well as cognitive and credit activity safety standards are not being upgraded make the financial safety and stability level decreased. In Vietnam, the credit activity gradually implemented within the framework of ever-improving legal and international experience drawn from the crisis to apply in accordance with the specific situation in Vietnam. The international standard for risk management for each form of credit, credit limits, inspection, monitoring, ... institutionalized and implemented. However, credit activity in Vietnam and in HCM City also contains many risks because of developing large-scale credit. The government and the State Bank of Vietnam (SBV) has a number of solutions designed to manage stable credit activity and motivated to diversify credit activity in the commercial banks in HCM City However, the credit activity in Vietnam and Hochiminh city still containts risks. Iin the process of implementing policies, some commercial banks still have not made a compliance with regulations on credit and lending is the primary activity, many commercial banks in the area have not yet diversify credit activity and risky. The law is not uniform and synchronous; development orientation to diversify credit activity not timely; regulatory activity are not appropriate to facilitate the diversification of credit activity; inspection and supervision activity should be more complete. These are the requirements for state management, which should be completed soon and having state management solutions, creating a favorable environment for commercial banks to diversify credit activity, contribute to limit operational risks in credit activity of commercial banks and to better meet the needs of capital for socio-economic development in the area. 3 On the basis of the above practices, there have been many international and domestic studies related to state management in credit activity diversification. However, the situation is incomplete research, unsystematic; none of the studies are referring to the state management in diversification of credit activity of commercial banks in HCMC. Starting from the essential requirements of having complete solutions for the state management in credit activity diversification process of commercial banks and related studies’s situation as stated above, the authors selected the topic "State management in diversification of credit activities of commercial banks in Ho Chi Minh City to the year of 2020" for the subject of the thesis research. 2. The situation of related studies There are many valuable researches contributed to the development of credit activity and state management of credit activity. However, studies have not specified the content and evaluation criteria for state management in credit activity diversification. In particular, due to the research focused on lending activity, there is not any specific, comprehensive, deeper research of state management in diversification of credit activity of commercial banks in the HCMC area, to be able to apply scientific and effective in practice. 3. Objective of the Study The main objectives of the studies are: (i) To systematize, deepening the theoretical issues related to efficient state management of credit activity diversification; (ii) To apprise the situation and the results of credit activity diversification; to identify the causes, the weakness in the credit activity of the local commercial banks, especially, to analyse the situation of state manangement in credit activity diversification of the commercial banks and to identify factors affecting the results of state manangement in diversification of credit activity of the commercial banks in HCM City to the year 2020; and (iii) To recommend the solutions to improve state management in diversification of credit activity of the commercial banks in HCM City to the year 2020. 4. Object and scope of the Study Subjects of the Study are the contents of state management in diversification of credit activity of commercial banks in HCMC. The specific subjects include: (i) theory and international experience of the state management in credit activity diversification; (ii) state management practices in diversification of credit activity of the commercial banks in HCM City. 5. Methodology of the Study Methodology of the Study: The thesis analyzes credit actitivies, credit diversification and state regulatory on credit diversification, the international experiences of countries with similar conditions to Vietnam, the current situation of state regulatory on credit diversification in Vietnam and HCMC to to make recommendations to improve the state management in diversification of credit activity of commercial banks in HCMC. 4 Thesis uses qualitative methods and research tools. It uses statistical methods, survey and interview methods, expert method, comparative method, and analysis and synthesis method. 6. New contributions of the thesis First, the contribution of literature: The thesis has supplemented, completed the theory and scientific foundation on credit diversification and state regulatory on credit diversification. In particular, Ansoff matrix applied to the direction selection and credit activity diversification choice. It also selected criteria for evaluating the results of state management and identified factors that affect the results of state management in credit activity diversification. Second, applying international experience: Refer to the experience of Asian countries with similar conditions to Vietnam and combines international experience with the specific situation in Vietnam. Third, assessing the result of credit diversification in the period of 2006-2012 based on the criteria of amount, growth rate and safety. In addition, assessing the state management in diversification of credit activity in HCM City in the period 2006-2012 based on the criteria of the effectiveness, efficiency, relevance and sustainability. Fourth, based on the assessment of current situation, achievement, shortcomings to propose solution to improve state management in diversification of credit activity of commercial banks in HCM City to the year 2020, consists of the solutions group about legal framework completion, the development orientation of the State, the State's regulation, the inspection and supervision of the State. Fifth, applying the results of research into practice: The groups of propose solutions and recommendations can be successfully applied in practice, particularly the legal framework related to each form of credit accordance with the Law on Finance Institutions (2010). Therefore, implementation of the solution will positively impact to the state management process of diversifying credit activity of banks in the country in general and of the commercial banks in HCMC in particular. 7. Structure of the Study Chapter 1: Literature overview of state management in diversification of credit activity of commercial banks. Chapter 2: The realitiy of state management in diversification of credit activity of commercial banks in HCM City in the period of 2006-2012. Chapter 3: Solutions to improve state management in diversification of credit activity of commercial banks in HCM City to the year 2020. CHAPTER 1 LITERATURE OVERVIEW OF STATE MANAGEMENT IN DIVERSIFACTION OF CREDIT ACTIVITY OF COMMERCIAL BANKS 1.1 Diversification of credit activity of commercial banks 1.1.1 Definition of diversification of credit activity of commercial banks 5 There are many concepts of diversification related to different areas. Applying and combining of concepts and purposes of credit activity diversification, the authors of the thesis think that diversification of credit activity of commercial banks means expanding forms of credit, such as loans, CCCN discount and other valuable papers, bank guarantees, credit card issuance, factoring and other forms of credit; and expanding the types and methods of each form of credit, in order to develop advantages of each form of credit, to exploit the advantages of all kinds, each method in the form of credit, to better meet the needs of the customers, increase income and minimize credit risk of commercial banks. 1.1.2 The need to diversify the credit activity of commercial banks Diversification of credit activity contributes to mitigate credit risk. At the same time, it contributes to profit growth in a sustainable way. 1.1.3 Contents of the diversification of credit activity of commercial Orientation and types of credit diversification: Develop new forms of credit; develop new types and methods on each form of credit (see Figure 1.1) Figure 1.1. Credit diversification
TYPES OF Term lending LOAN Currency lending Customer oriented lending
Sectoral, industrial lending LOAN Lending for each loans Lending as limits METHODS Project lending OF LOAN Syndicate lending Installment lending FORMS Lending under the limit provision OF Lending overdraft limit CREDIT METHODS VALUATBLE OF Term purchasing DOCUMENTS DISCOUNT AND CCCN DISCOUNT Purchasing with recource
Loan guarantee TYPES OF GUARANTEE Payment guarantee GUARANTEE Bidding guarantee Contract implementation guarantee Product quality guarantee Advance repayment guarantee Other guarantees
CREDIT CARD 6
TYPES OF CREDIT Domestic credit card CARD International credit card
TYPES OF Factoring with recourse FACTORING Factoring without recourse
FACTORING METHODS Factoring for each time OF FACTORING Factoring for each limit
Co-factoring 7 Source: Author collected from other articles and legislation documents
1.1.4 Criteria for evaluating the results of the diversification of credit activity of commercial banks Based on the detailed direction of diversification and diversifying selection shows the development requirements in terms of quantity, size, growth rate of forms of credit, types and methods of credit and apply indicators of a CAMELS criteria, the author provides evaluation criteria for the results of diversification of credit activity of commercial banks include quantitative criteria, criteria of size, growth speed criteria and safety criteria. 1.2 State manangement in diversification of credit activity of commercial banks 1.2.1 Some views on state management 1.2.1.1 The view of state intervention in the economy in general All economic schools had given the role of the state in the market economy and theoretical point of each school is different, and that the State can intervene in the economy through the state management tools and create an enabling environment to promote and ensure the market factor of stability, to maintain order and security in society, aimed at stability and economic-social development. 1.2.1.2 The view of state management in the money market and credit activity Based on the above views, the author take a position on the state management in money market and credit activity as follows: First, the State plays an important parte in promoting money market and credit activity effectively, contributing to the economic and society development. Second, the State facilitate an enabling environment for all aspects of the money market and bank credit growth. Third, the State intervene money market, bank credit in a required level in accordance with the principles of the movement rule of the market economy. 1.2.2 Definition of state management in diversification of credit activity of commercial banks State management in diversification of credit activity of commercial banks can be understood as the organizational, oriented and state powerful impact of the state administration bodies by state management methods and tools to the development process of credit forms, and the development of types and methods for each form of commercial bank credit, to promote the diversification of credit activity efficiently, create conditions conducive environment and ensure the diversification of credit activity of commercial banks for sustainable development, supply credit to various utilities, contributing to implement target of social-economic development. 1.2.3 State management goal of diversifying the credit activity of commercial banks (i) To promote the diversification of credit activities grow fast, efficiency, safety and sustainability; (ii) To develop at the right direction, prescribed by law for other forms of credit, other types and method of credit; and (iii) To ensure fairness, transparency and harmony of interests in the process of diversifying credit activity. 8 1.2.4 Contents of state management in diversification of credit activity of commercial banks State management in diversifying credit activity of commercial banks with the functions: development planning, administration and control of the State on various credit activity. (i) The development strategy of the State in diversifying credit activity; (ii) To promulgate legislation in diversification of credit activity; (iii) To regulate diversification process of credit activity; and (iv) To inspect and supervise the process of diversification of credit activity. 1.2.5 Relationship between State management on diversity and credit activity needs to diversify credit activity of commercial banks The relationship between state management in diversification of credit activity and needs to diversify credit activity of commercial banks plays the decisive role of state management to meet the needs of having an optimal structural diversification of the credit activity of commercial banks. 1.2.6 Criteria for evaluating the results of state management in diversification of credit activity of commercial banks From the relationships between the objectives, functions and contents of state management in diversification of credit activity and using the criteria to evaluate the state management of the Asian Development Bank, the author synthesize criteria for evaluating the results of state management in diversification of credit activity include: validity criteria, effectiveness criteria, eligibility criteria, equality criteria and sustainability criteria. 1.2.7 Factors affecting the results of state management in diversification of credit activity of commercial banks Objective factors: (i)The social- economic development, (ii) The finance market development level; Subjective factors: (i) Orientation of social- economic development; (ii) Formulation and implementation of banking and finance services development schemes; (iii)Application of the method of state management in diversification of credit activity; (iv) Selection tools of state management and support of the State in diversifying credit activity; and (v) Compliance, observance of the law of diversification of credit activity. 1.3 International experience in state management in diversification of credit activity All countries’ laws allow the commercial banks to implement various forms of credit, CCCN and valuable papers discount, bank guarantees, credit card issuing and factoring. The State orients, regulates, inspects, and monitors closely the process of diversification of credit activity. At the same time, it provides diverse information, support, orientation, and facilitates the process of diversification of credit activity of commercial banks. 9 Lessons learned about state management to diversify credit activity: to build, to improve legal framework fully and synchronously, to issue regulations that guiding inplement credit forms synchronously and timely and in accordance with applicable laws, to build credit growth plans to ensure feasibility, testing, inspection, monitoring credit activity according to international standards and practices, to implement the State support activity to promote the diversification process of credit activity. CHAPTER 2 THE REALITY OF STATE MANAGEMENT IN DIVERSIFICATION OF CREDIT ACTIVITY OF COMMERCIAL BANKS IN HCM CITY IN THE PERIOD OF 2006-2012 2.1 The commercial banks in HCM City overview 2.1.1 Overview of the social-economic situation in HCM City Ho Chi Minh City a center of economic, finance, trade and services in the country, that have high rate of economic growth, diversification of economic activity. HCM City leads the nation in the number of banks and finance/credit sales. However, HCM City still faces many difficulties such as outdated infrastructure, overload, high consumer price index .. also make difficult for the economy. 2.1.2 The process of formation and development of the number of commercial banks The number of commercial banks based in the province by the end of 2011 was 16, in 2012 was 14, which was established through new establishment, credit cooperatives fusion and commercial banks mergence. Credit activity of commercial banks over the years met a certain number of difficulties, particularly credit risk as increasing NPLs. Therefore, continuing activity restructure and NPLs treatment, besides diversifying credit activity of commercial banks is an urgent requirement in the current period. 2.2 The reality of diversification of credit activity of commercial banks in HCM City in the period of 2006-2012 2.2.1 The reality of diversification of credit forms. For lending: Lending is the first, primary and traditional activity in the process of diversification of credit activity that have the proportion over 92% -96% of total credit outstanding during the period of 2006-2012 (see Table 2.1, Table 2.2). Table 2.1. Credit activity of commercial banks in the HCM City in 2006- 2012 by forms 10 2006 2007 2008 2009 2010 2011 2012 Loans (tỷ đồng) 80.417,75 169.947,81 198.990,98 324.688,76 446.298,44 497.009,18 554.236,49 CCCN and other valuable papers discount 1.452,95 6.318,56 855,61 1.227,73 2.872,83 1.619,95 969,69 Bank guarantees 4.445,15 3.666,14 4.685,43 8.194,34 11.124,42 13.434,82 16.570,23 Credit cards 121,13 186,35 393,34 553,66 681,74 1.816,74 2.150,84 Factoring 115,14 295,77 365,08 548,62 607,85 630,06 664,21 Grand total 86.552,12 180.414,63 205.290,44 335.213,11 461.587,66 514.510,75 574.591,46 Loans proprotion 92,91% 94,20% 96,93% 96,86% 96,69% 96,60% 96,46% CCCN and other valuable papers discount proprotion 1,68% 3,50% 0,42% 0,37% 0,62% 0,31% 0,16% Bank guarantees proprotion 5,14% 2,03% 2,28% 2,44% 2,41% 2,61% 2,66% Credit cards proprotion 0,14% 0,10% 0,19% 0,17% 0,15% 0,35% 0,35% Factoring proprotion 0,13% 0,16% 0,18% 0,16% 0,13% 0,12% 0,11% Grand total 100% 100% 100% 100% 100% 100% 100% Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch, annual reports, financial reports of commercial banks and the author's calculations.
Loans accounted for high proportion so lending growth correspond to the credit growth in the period of 2006-2012 (see Table 2.1, Table 2.2). Table 2.2. Growth in each form of credit and funding of commercial banks in HCM City in the period of 2006-2012 Forms 2006 2007 2008 2009 2010 2011 2012 Loans 111,33% 17,09% 63,17% 37,45% 11,36% 11,51% CCCN and other 334,88% -86,46% 43,49% 134,00% -43,61% -40,14% valuable papers discount Bank guarantees -17,52% 27,80% 74,89% 35,76% 20,77% 23,34% Credit cards 53,85% 111,08% 40,76% 23,13% 166,49% 18,39% Factoring 156,88% 23,43% 50,27% 11,23% 3,25% 5,42% Credit growth 108,45% 13,79% 63,29% 37,70% 11,47% 11,68% Funding growth 109,34% 24,59% 37,54% 12,32% 11,31% 16,22% 11 Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch, annual reports, financial reports of commercial banks and the author's calculations. By the end of 2012, NPLs rose highly, especially, the proportion at risk of losing capital debt accounted for over 30% of the bad debt is a high risk of the credit activity for commercial banks (see Table 2.3). Loan growth in the recent years is lower than the previous year, but the NPLs ratio rose sharply, increasing delinquency, shows that loans’ quality is low, that increases risk in credit activity. Table 2.3. NPLs of commercial banks in HCM City in the period of 2006- 2012 12 Debt ratio 2006 2007 2008 2009 2010 2011 2012 NPLs ratio 0,66% 0,49% 2,34% 1,39% 1,82% 1,98% 3,63% Group 5 debt in total NPLs 39,64% 44,41% 21,70% 56,20% 33,74% 30,50% 36,84% ratio Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch, annual reports, financial reports of commercial banks and the author's calculations. CCCN and other valuable papers discount activity: These activities have been allowed by the SBV since 1991. However, the slow in implementation made discount balances account for low proportion of total credit outstanding, as 1.68% in 2006, 3.50% in 2007, the years after remaining less than 1% (see Table 2.1) and the growth rate of these activity fluctuated sharply in the period 2006-2012 (see Table 2.2). Bank guarantee activity: The balance density has gradually increased from 2% to more than 2.6 % of total credit outstanding after falling in 2006 (see Table 2.1). However, the growth rate is more volatile (see Table 2.2), due to the impact of the adjustment and additional of many rules for a long time, but still reveals many disadvantages; it has not mentioned all the practical problems concerning the rights and obligations of the parties involved in the guarantee contract that cause difficulties and problems for commercial banks during deployment. Issuance of credit cards activity: the legal framework had been issued since 1999, but in 2007 a new regulation was enacted, allowing commercial banks issuing credit cards. High credit growth, especially in 2011 (see Table 2.2), as the SBV limit consumer lending, many commercial banks turn to credit by issuing credit cards. However, the debt ratio was still low (see Table 2.1). Factoring activity: the proportion of factoring is too low, less than 0.2 % of total credit outstanding (see Table 2.1). Because this activity is new, the SBV has just issued regulations in 2004 (added in 2008), but the lack of synchronization between the laws of finance institutions and regulations to ensure the effective implementation of commercial banks. 2.2.1 The reality of diversification of types and methods in each form of credit Diversification of loan types and methods Diversification of loan terms: Short term loans always account for over 57% of total loan outstanding and tend to decrease due to the SBV's regulation of limit consumer lending, not recommended areas lending. Medium-term and long-term loans tend to increase up to over 40% of total loan outstanding (see Table 2.4 and Figure 2.1), because commercial banks lend to investment projects under the program of economic restructuring, investment stimulus in HCM city. Chart 2.1. Proportion of loans of commercial banks by type in HCM City in the period of 2006-2012 13
70,00% 68,64% 63,68% 63,75% 60,00% 58,55% 59,50% 58,49% 57,02%
50,00%
40,00% Ngắn hạn Trung hạn 30,00% Dài hạn 26,09% 23,61% 24,97% 24,38% 21,02% 21,27% 20,52% 20,00% 17,84% 16,90% 15,05% 15,73% 16,55% 16,12% 10,34% 10,00%
0,00% Năm Năm Năm Năm Năm Năm Năm 2006 2007 2008 2009 2010 2011 2012 Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch, annual reports, financial reports of commercial banks and the author's calculations Diversification of loan by economic sectors: Trade and service sector loans account for over 57%, followed by loans for industry - construction accounting for over 20% of the outstanding loans (see Table 2.5). The proportion of loans in accordance with the industry's economic structure in the area. Table 2.4 Loans by sectors of commercial banks in HCM City in the period of 2006-2012 14 Loans 2006 2007 2008 2009 2010 2011 2012 Trade - Service 64,72% 61,57% 59,63% 58,67% 59,95% 57,93% 59,17% Industry - Construction 23,55% 22,54% 20,69% 23,76% 23,80% 24,97% 28,11% Argiculture 2,81% 2,44% 5,73% 2,74% 3,95% 4,96% 4,84% Other industries 8,92% 13,46% 13,94% 14,82% 12,31% 12,13% 7,87% Grand total 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch, annual reports, financial reports of commercial banks and the author's calculations
Diversification of loan by currencies: Due to SBV regulation, restrictions on foreign currency lending objects, loans in Vietnam Dong (VND) in the period 2006- 2012 accounted for over 70% of loans outstanding (see Table 2.6) Table 2.5. Loans by sectors of commercial banks in HCM City in the period of 2006-2012 indicator 2006 2007 2008 2009 2010 2011 2012 VND 69,53% 71,93% 71,12% 75,23% 72,75% 70,28% 74,90% Foreign 30,47% 28,07% 28,88% 24,77% 27,25% 29,72% 25,10% currencies Total 100% 100% 100% 100% 100% 100% 100% Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch, annual reports, financial reports of commercial banks and the author's calculations Diversification of loans by currencies: Due to SBV regulation, restrictions on foreign currency lending objects, loans in Vietnam Dong (VND) in the period 2006- 2012 accounted for over 70% of loans outstanding (see Table 2.6) Diversification of loan by customer types: Chart 2.2. Proportion of loans by customer types of commercial banks in HCM City in the period of 2006-2012
56,20% 58,63% 56,33% 60,00% 56,14% 50,64% 50,86% 50,18%
46,91% 50,00% 46,20% 46,68% 40,14% 41,12% Doanh 38,94% 39,57%nghiệp nhà 40,00% nước
Doanh nghiệp 30,00% khác
20,00% Cá nhân
10,00% 3,72% 4,10% 3,17% 2,47% 2,91% 2,68% 2,42%
0,00% Năm 2006 Năm 2007 Năm 2008 Năm 2009 Năm 2010 Năm 2011 Năm 2012 15 Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch, annual reports, financial reports of commercial banks and the author's calculations The target customer group of commercial banks is the non-state enterprises. Therefore, lending activity of commercial banks mostly focused on this group at a rate more than 95% of the total loan portfolio (see Chart 2.2) Diversification of loans by business sectors and consumer sectors: in 2006 and 2007, VND interest rate was mostly stable, that was a favorable condition for the development of consumer lending activity, especially installment loans to buy houses, cars and living facilities. Therefore, the consumer loans of these years accounted for a higher proportion than the remaining years in the period of 2006- 2012 (see Chart 2.3). Chart 2.3. Proportion of loans by business sectors and consumer sectors of commercial banks in HCM City in the period of 2006-2012
90,00% 81,75% 81,04% 79,95% 81,40% 80,00% 78,09% 76,18% 77,04% 70,00% Sản xuất 60,00% kinh doanh 50,00%
40,00%
Tiêu 30,00% 23,82% 22,96% dùng 20,05% 21,91% 18,25% 18,96% 18,60% 20,00%
10,00%
0,00% Năm 2006 Năm 2007 Năm 2008 Năm 2009 Năm 2010 Năm 2011 Năm 2012
Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch, annual reports, financial reports of commercial banks and the author's calculations Diversification of loans by methods: loans outstanding by limitation and by times accounted for the highest proportion, over 48%-58% of total credit outstanding, projects investment loans accounted for 30%-42% of total credit outstanding, instalment loans accounted for over 6% of total credit outstanding. In particular, syndicated loans, overdraft loanslimit accounted for very low propotion, less than 1% of total credit outstanding (see Table 2.7). Table 2.6 Loans by methods of commercial banks in HCM City in the period of 2006-2012 16 Indicator 2006 2007 2008 2009 2010 2011 2012 Ratio 100% 100% 100% 100% 100% 100% 100% By limitation and time 58,53% 54,51% 52,38% 57,17% 50,82% 52,17% 48,97% By projects investment 30,89% 36,09% 40,76% 35,69% 41,03% 39,96% 42,39% Syndicated loans 0,48% 0,23% 0,68% 0,56% 0,49% 0,53% 0,60% Overdraft loans 0,05% 0,03% 0,03% 0,21% 0,17% 0,14% 0,25% Instalment loans 10,05% 9,14% 6,15% 6,37% 7,49% 7,19% 7,80% 17 Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch, annual reports, financial reports of commercial banks and the author's calculations Diversification of discount methods: Most of the local commercial banks performed CCCN and other valuable papers discount ativity by the method that buyer has recourse right. Growth has changed sharply, especially negative growth (see Table 2.2), due to the impact of credit constraints for securities business investment, high credit interest and influence by the difficulties of the business. Diversification of bank guarantees: Payment guarantees accounted for over 42%, contracts performance guarantee accounted for over 10% of the guarantee balance. This is common kinds of guarantee for business and construction investment needs. Loan guarantees accounted for the lowest proportion, less than 4% during the period of 2006-2011, and accounted for more than 11% in 2012 in structure of the guarantee due to lack of collateral of the loans in other banks (see Table 2.8). Table 2.7. The balance of a bank guarantee of commercial banks in HCM City in the period of 2006-2012 18 Indicator 2006 2007 2008 2009 2010 2011 2012 Ratio 100% 100% 100% 100% 100% 100% 100% Payment guarantee 70,83% 47,88% 49,89% 58,84% 47,22% 46,51% 42,56% Contracts perfomance 7,64% 15,55% 11,70% 10,91% 14,78% 15,39% 11,21% guarantee Bid guarantee 3,12% 5,57% 4,29% 3,25% 2,91% 3,37% 2,81% Loan guarantee 0,00% 2,24% 3,64% 0,82% 1,32% 1,72% 11,40% Other guarantee 18,41% 28,76% 30,47% 26,18% 33,77% 33,01% 32,01% 19 Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch, annual reports, financial reports of commercial banks and the author's calculations Diversification of credit card issuance types: Issuance of domestic credit cards always accounted for higher proportion than international credit card, showed that transaction and payment via local credit card demand was high (see Chart 2.4). Chart 2.4. Proportion of loans by credit card issuance types of commercial banks in HCM City in the period of 2006-2012
80,00% 75,23% 71,93% 71,12% 72,75% 69,50% 70,28% 70,32% 70,00%
60,00% Phát hành thẻ tín dụng 50,00% nội địa
40,00% 30,50% 29,72% 29,68% 28,07% 28,88% 27,25% 30,00% 24,77% Phát hành thẻ tín dụng quốc tế 20,00%
10,00%
0,00% Năm 2006 Năm 2007 Năm 2008 Năm 2009 Năm 2010 Năm 2011 Năm 2012
Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch, annual reports, financial reports of commercial banks and the author's calculations Diversification of factoring types and methods: This activity’s growth fluctuated sharply and it accounted for a low proportion (see Table 2.1). The reason was the lack of synchronization between the laws and regulations applicable to finance institutions to ensure the effective implementation of commercial banks, besides the lack of information is one of the factors affecting the implementation of factoring activity. 2.2.3. Diversification of credit activity of commercial banks review 2.2.3.1. Diversification of credit forms of commercial banks review Quantity: According to the data compiled by the author from the financial reports of commercial banks, 100% of commercial banks implemented 3 diversified credit forms include CCCN and other valuable papers discount, bank guarantees; 42.86% of commercial banks implement 4 diversified credit forms include CCCN and other valuable papers discount, guarantees, issuance of credit cards; 35.71 % of commercial banks implement 5 diversified credit forms include include CCCN and other valuable papers discount, guarantees, issuance of credit cards and factorings. Scale: The proportion over 94% of the total credit forms outstanding (see Table 2.1), showing that loan was the form that commercial banks in the area focused on during deployment from 2006 to 2012 . 20 Growth: The other forms of credit’s growth fluctuated sharply, even negative growth, lack of stability in maintaining balance. Only the lending activity increased every year, the lowest growth rate was 11%, showing that the local commercial banks focused on lending activity. 2.2.3.2. Diversification of credit types and methods of commercial banks review Quantity: According to the data compiled by the author from the financial reports of commercial banks, 100% of commercial banks implemented 3 diversified loan types, at the end of 2012 just over 7% implemented 5 types (each time, limit, projects investment, syndication, overdraft). CCCN and other valuable papers discount activity just implemented the methods which buyers had recourse right, not implemented enough 2 method (see Table 2.9), more than 14% achieved 5 guarantee types. Credit card issuances have been done in 2 types, but only 42% did; more than 28 % had factoring in 1 type and 1 method to the end of 2012. Scale: With the proportion of over 58%, short-term loans predominated (see Chart 2.2); limit and time loans accounted for over 50% of the lending methods (see Table 2.7). Perform 1 CCCN and other valuable papers discount method. The payment guarantee balance was the type that accounted for highest proportion, over 42% of the guarantee types. The proportion of domestic credit card balances dominated at over 70 % of the credit cards (see Chart 2.4). Because only performing one type and one method of factoring, the factoring activity in the local commercial banks had not expanded the number of the types and methods. Growth: With the growth rate of over 23% of loans, commercial banks focused on short term loans (see Table 2.4) and limit loans and each time loans grew annually and less volatile. CCCN and other valuable papers discounting activity just perform 1t method and had the negative growth in 2011 and 2012 (see Table 2.2). The bank guarantees had significant volatility, many types of guarantees had negative growth. The issue of credit card grew annually and grew at higher rate in the years of 2006-2012. Growth in the balance of 1 type and 1 method of factoring is unstable and only reached over 5% at the end of 2012 (see Table 2.2 ). 2.2.3.3. Diversification of credit activity review by safety criteria According to the above criterias, the commercial banks mainly focused on lending, diversified the types of loans, but not really diversified forms of credit, as well as not fully diversified credit types and methods in the period of 2006-2012. The reason was lending was the traditional activity and new laws allowing further development of other forms of credit in recent years. The safety criteria review by the author’s synthesis from commercial banks’s financial reports showed that commercial banks had complied the capital adequacy ratio minimum and the rate of short-term deposits used for medium and long-term loans and diversified effectively credit activity. However, safety is not actually guaranteed, NPLs ratio was 3.63%, higher than the threshold of the SBV warning, loan to deposit ratio was 93%, the ratio of income from loan to total income from credit was 96% was quite high, showed that commercial banks had not really diversified credit activity. 21 2.3. Status of state management in diversification of credit activity of commercial banks in HCM City in the period of 2006-2012 2.3.1. Orientation of development strategy of the State of diversifying credit activity Orientation of credit growth’s average rate at 18%/year - 20%/year in the banking system, of the development and diversification of banking products and services. HCMC people’s committee built up and implemented banking and financial services development schemes for the period of 2006-2010 in the area with the aim of diversifying the banking products and services, with the development of modern banking, achieving sustainable and efficient growth. Annual orientation of the SBV included annual credit growth plans and loans for investment in real estate and securities limitation. Orientation of the HCMC branch of the State Bank included focusing on the business credit and planned annual credit growth (25% -27% in 2007, 32% - 34% in 2008, 21% -23% in 2009, about 25% in 2010, less than 20% in 2011, 15% -17% in 2012) 2.3.2. Issuance of law of credit activity’ diversification By early 2013, the law has regulated forms of credit including loans, CCCN and other valuable papers discount, bank guarantees, credit card issuance, factoring. Loan types included: short-term loans, medium-term loans, long-term loans; loan methods included: each time loans, credit-limit loans, projects investmeng loans, syndicated loans, instalment loans, credit-limit provision loans, credit card loans, overdraft loans and other method loans in accordance with the law and other regulations of the SBV. Discount methods included: CCCN and other valuable papers repurchase agreement, activity which buyers had recourse right, CCCN and other valuable papers discount syndication. The types of guarantees: payment guarantee, bid guarantee, contract performance guarantee, loan guarantee, product quality guarantee, refund guarantee, counter guarantee, guarantee certification, co-guarantee, the other guarantee types. The types of credit cards included domestic and international cards. The type of factoring included having recourse right or not. The factoring method included each time, limit and co-factoring. 2.3.3. Regulate the diversification of credit activity 22 The state’s regulation and support included the SBV’s regulation, and state the State Bank Branch HCMC’s regulation, impact from HCMC government through programs of economic and social development, SBV’s regulation through licensing activity for other forms of credit support activity, enabling development of credit activity by providing credit information of the SBV, facilitating for SMEs to access credit capital of the commercial banks through credit guarantee for SMEs, coordinating, facilitating to exchange information between customers, commercial banks and state management agencies. This activity mainly focused on lending, the SBV and State Bank HCMC Branch regulated lending activity to serve the production needs, restricted extending loans to the business sector of investment property estate, securities, consumer; and at the same time, directing commercial banks to develop short-term loans, medium-term loans and long-term loans consistent with annual orientation, also facilitating local commercial banks to expand lending activity and diversifying lending methods. 2.3.4. Testing, inspection and monitoring process of diversification of credit activity Testing, inspection, monitoring activities focused on compliance of the lending laws and regulations restrict lending on business factor of investment real estate, securities, and consumer. Through the years’s fact, a number of commercial banks had not strictly complied the credit activity’s law, violating credit activity’s regulations, not comply with the law in loan classification and provisioning and had violations of credit activity, bank guarantee, not legal compliance of credit records, appraisal and loan approval, improper loans, loans ineligible, unstrictly implementation sufficiency in regulation of credit growth, debt hiding in various forms .. showed that inspection and supervision of the SBV was an urgent requirement. 2.3.5. Achievements and limitations of state management in diversification of credit activity of commercial banks in HCM City - Achievement: The state’s activities oriented inflation control and macro- economic stability. The law of diversification of credit activity has achieved significant improvement. Regulating expansion of diversified lending activity; limiting lending to certain high-risk areas to ensure safety in credit activities and facilitate of information, customer support and accessing to commercial banks credit in diversification of credit activitity. Regulations of inspection and supervision were completed gradually, the author's aggregate results from SBV’s information about operating, monitoring showed that regulations of credit activities’ safety also improved gradually, has created a legal framework for the inspection and supervision of the process of diversification of credit activity, helped commercial banks supervise and inspect to ensure safety and contribute to ensuring the safety of the system. 23 Limitations: The state concentration on preventing the risk of monetary inflation from credit channel through lending activities, so the state’s development orientation activities of diversifying credit activity in the period of 2006-2012 mainly focused on lending activity. The regulations promulgation had not kept up with fast evolution of the economy, had not reviewed and evaluated the implementation of the regular form of commercial banks’ credit to update the regulations issued uniform and in accordance with the legal provisions that were effective. Because orientation almost based on lending, it has made the regulatory activity to be primarily directed at lending activities and focus on the diversification of lending. In many cases, regulation and intervention by administrative methods were used to control for a number of areas to reduce lending risks, but it often lacked of guidance and lacked of credit information to facilitate diversity, support for the development of other credit forms of commercial banks, exploite the advantages of each form, each type and each method of credit to disperse and reduce risk.The inspection and supervision focused on safety risks of each commercial bank, the legal basis for inspection, monitoring macro safety risks have not been issued yet, that affected the law implementation process of credit activity of some commercial banks have not strictly followed, in violation of regulations through the diversification of credit activity. 2.3.6. Factors affecting the results of state management in diversification of credit activity of commercial banks in HCM City First, the development of social-economic development and the financial markets development level: With high economic growth rates, per capita income increase higher, multi-sector economic activity, diversified and frequently credit demand created need for diversification of credit acitivity. However, finance markets in Vietnam in general and in HCM City in particular has not developed yet, not create more financial products to participate in the various credit transactions, especially the CCCN and valuable papers to develop discount activity. Bank credit market mainly focused on lending, not really diversified credit activity yet, making the law of diversification credit activities can not fully implemented, reduce the impact and effectiveness of state management in the process of diversifying credit activity. Second, the economic and social development orientation: Deriving from the social-economic conditions in each stage, the orientation of the State towards inflation control and macro-economic stability, prevent the risk of monetary inflation from credit channel, especially lending, so the orientation activities, regulation, direction, administration and inspection and supervision of the State Bank and the State Bank City Branch HCM is not directed to deploy diversifying credit activities but focus and direct to lending activity. Since then, it had not built specific objectives and proposed solutions to diversify credit activity, impact on the outcome of state management in diversification of credit activities. 24 Third, project of developing banking and finance services construction and implementation: Formulation and implementation of development schemes banking and financial services in HCM City had not specified goals of credit activity’s diversification in the construction and implementation of the project. Thereby, it impacted on orientation, regulation and inspection and supervision of the State Bank HCMC Branch, not aimed to diversifying credit activity and affected the results of the state management in diversification of credit activity. Fourth, application of state management methods: The state applied administrative method for direct intervention in lending activity that has created circumvention of regulations phenomena, lack of compliance from commercial banks and causing some difficult to regulate the activities of the SBV, showed that the intervention by the administrative method was not really appropriate, impacted the outcome of state management in diversification of credit activity. Fifth, tool selection of state management and support of the State: the State has chosen to use the full suite of state management tools that influenced the diversification of credit activity. However, it had not promoted the role of the state management tools in creating the best conditions for the development of other multi- utilities credit forms of commercial banks, contribute to improve the results of state management in diversification of credit activity. Sixth, compliance with the laws of diversifying credit activities of commercial banks and customers: A number of commercial banks had not complied with the regulations relating to credit form and lack of transparency in the crediting process, that has impacted the effectiveness of state management and influence the outcome of state management in diversification of commercial banks in HCM City. 2.3.7. Evaluation of State management in diversification of credit activity of commercial banks in HCM City First, the evaluation by validity criteria: Legislation of diversification of credit activity lacked uniformity, consistency and compatibility between laws and performance guidelines. In addition, some commercial banks have not followed, violating rules during diversifying credit activity, not public, transparent, not seriously implemented regulations on credit growth, conceal debt in many ways. Therefore, the validity criteria, state management in diversification of credit activity have not fully met the requirements. Second, the evaluation by effectiveness criteria: legal framework have been adjusted and added several times but it was still note consistent, uniform and timely. Regulation and testing, inspection and compliance monitoring primarily on lending acitivity, make the operation of state management in diversification of credit activity in HCM City has not really effective. 25 Third, the evaluation by appropriate criteria: The law has been improved gradually, but the regulations on lending, bank guarantees, credit card issuance, factoring is not synchronous, inappropriate with the 2010 Law on Finance Institutions. The state used administrative method to intervent directly in lending activity through administrative methods which was not fit, making state management of diversification of credit activity not really met the appropriate criteria requirements. Fourth, the evaluation by equality criteria: the customers access to suitable source of credit with suitable type and method of credit granting. Ensure principles of credit refund, credit supply conditions. However, SMEs face many difficulties in credit accession. There are many reasons for this situation. From the SME side: lack of transparency, poor corporate governance, not ensuring loan conditions; from bank side: not to use the utility and advantages of each appropriate form, type and method of credit granting, primarily focus on lending and risk aversion in lending. On the other hand, high interest rate is one of the obstacles which cause firms difficult to access credit. Fifth, the evaluation by sustainability criteria: State Bank guided to ensure safety for each credit form and limited for each type of credit. However, law are issued by the state for each form of credit, types and methods of credit has been adjusted and added pretty much, that was difficult to access due to inappropriate, inconsistent, hardly access to life, and lack of long-term stability. The evaluation by sustainability criteria showed that laws have not guaranteed long-term stability, and many changes have not ensured the requirements of sustainability criteria.
CHAPTER 3 IMPROVEMENT SOLUTIONS FOR STATE MANAGEMENT IN DIVERSIFICATION OF CREDIT ACTIVITY OF COMMERCIAL BANKS IN HCM CITY TO THE YEAR 2020
3.1 Object, view and orientation of the state management improvement of diversification credit activity of commercial banks in HCM City to 2020 3.1.1 The development orientation of the Party and the State and economic context in the current period The 2011-2020 social-economic development strategy’s object is the country strives to access GDP growth at average 7-8 %/year. For HCMC, striving average GDP growth for the period 2011-2020 as 1.5 times higher than the national’s average growth. To build HCMC civilized, modern, gradually become major centers of economy, finance, trade, science and technology of the country. 26 Orientation to 2020, the average credit growth is at 18 % -20 %/year , and develop of diversifying banking products and services. Priority of credit for production and for agriculture and rural development, export, supporting industries, production – processing, SMEs. Orientation for banking prospects in the area, SBV - HCMC Branch has predicted that credit and capital supply investment will increase in 2011-2015 from 20% to 25% . However, the economic situation in this period arose more difficulties. The economy has more difficulties, potentially increasing the risk of bad debts for the banks. Household region’s income actually fell, that changed consumer and investment behavior, affecting the financial system. Recovery of the economy is very important to contribute to the resolution of NPLs, and the implementation of financial institutions restructuring. Besides, the diversification in credit activities also contributes to risk dispersion and reduction, ensure safety in credit activities. 3.1.2 The necessary of improvement of state management in diversification of credit activitiy in HCM City to 2020 First, the economic context: The state should regulate timely, create a favorable environment, create better conditions for businesses and households which are difficult to access credit by diversying forms of credit, contribute to economic recovery, reduce the risk of incurring bad debts. Second, the context of the banking system: The banking system is in the process of restructuring activities under the scheme of banks restructuring project in 2011-2015. According to this, credit priority is production, agriculture and rural development, export, supporting industries, production–processing, SMEs. At the same time, the project was driven to diversify banking services as needed require and in accordance with the process of restructuring the operations of commercial banks. Third, the strategy direction of the Party and the State: The 2011-2020 social- economic development strategy and development orientation, targets of HCMC to 2020 about GDP growth and GDP per capita growth. Focus on improving the proportion of economic sectors and finance - banking. In addition, oriented-goal for development of the banking sector for the period 2011-2020 is to build banking system developed comprehensive, safe, sustainable, modern, operating under the socialist-oriented market mechanism. Diversify banks systems development with plentiful of banks products and services, gradually deeper integration into the regional and international market... Therefore, improvement of state management in diversification of credit acitivity of commercial banks becomes more urgent. 3.1.3 Object of improvement of state management in diversification of credit activities of commercial banks in HCM City to 2020 27 Through the above contents, the author proposes objects: (i) Improve law and policy of diversifying credit activity, innovative impact methods, improve state management tools consistent with the actual situation, in order to improve the effectiveness and efficiency of state management in diversification of credit activity. (ii) consolidate and improve the development orientation of diversifying banking services and development programs on social-economic in the area, create association with the diversification of credit forms, credit types and credit methods. (iii) Strengthen the regulatory activitiy of the State appropriately in accordance with the directions, regulations to improve the effectiveness of testing, inspection and monitoring of diversifying process of credit activity. (iv) Promote commercial banks in HCM City to develop diverse forms of credit, types of credit and methods of credit enduringly, in accordance with the requirements of social-economic development in the area. (v) Ensure compliance with the laws of commercial banks and customers with falicitating and creating a favorable environment for commercial banks in HCM City to diversify credit activity, for customers in approaching access of credit forms, credit types and credit method in diverse and multi – utilities credit forms. 3.1.4 The view of completion of state management in diversification of credit activity in HCM City to 2020 According to the author, improvement of the state management in diversification of credit activity of commercial banks in HCM City to 2020 should be based on the following principles: First, improvement of state management in diversification of credit activity must be associated with the process of economic restructuring, particularly restructuring the banking system and restructuring public investment activity. Second, improvement of the state management in diversification of credit activity must be linked to the economic and financial integration process which meet international banking and finance standards. Third, improvement of the state management in diversification of credit activity must be based on the development orientation of diversified products, banking services, in order to provide adequate, timely and convenient banking services to the economy . Fourth, improvement of the state management in diversification of credit activity must be in line with actual developments in banking operations and economic and social development orientations in the area, in accordance with integration and international cooperation in the field of banking. Fifth, improvement of the state management in diversification of credit activity must be on the basis of inheriting and developing the law of diversification of credit activity, at the same time, building regulations and create legal conditions for commercial banks to diversify credit activity. 3.1.5 Orientation of improving state management in diversification of credit activity in HCM City to 2020 28 Based on above objects and views, according to the author, improvement of state management in diversification of credit activity of commercial banks to 2020 follow orientations: First, create fully, uniform and timely legal framework, facilitate commercial banks to fully apply current forms, types and methods of credit. Second, build detailed orientation about diversifying credit activity for the projects, programs of developing diverse banking services in HCM City ... Third, create new forms of legislation to develop new forms, types and methods of credit. Fourth, create policies that encourage, facilitate and ensure the legitimate interests for commercial banks and customers to participate in the process of diversifying credit activity. 3.2 Solution to improve state management in diversification of credit activity of commercial banks to 2020 3.2.1 Solutions to improve the legal framework for diversifying credit activity 3.2.1.1 Complete the guidelines of credit forms in accordance with the current Law on Finance Institutions Promulgate new regulations on lending in accordance with the Law of finance institutions; add provisions for discounting promissory notes and checks on the CCCN Law 2005 to ensure consistency and compatibility between the Law and guiding documents. Regulate guarantee contracts signing authority, regulate authorization system that allows the authorized is representative to sign the guarantee contracts and regulate announcement of authorization information and bank guarantees information openly and transparently through the information system provided centrally from the head office of each commercial bank and at credit information centers of SBV. Issuing credit card is separately regulated that will avoid content duplication or confliction, overcome difficulties such as the case of regulated by the provisions of lending. For factoring, factoring concept must be more fully identified that demonstrate characteristics and advantages of this form of credit and in accordance with international rules according to the concept of International Factoring Association, help commercial banks building factoring activity procedures actually a complete financial package and protecting from credit risk. In the future to 2020, it is needed to issue Factoring Law, create fully, sychnorisedly legal framework to regulate the transfer activity of receivables, define fully rights and obligations of the parties, facilitate many commercial banks to expand domestic factoring activity and join the International Factoring Association through expanding import and export factoring. 3.2.1.2 Add types and methods in each form of credit of commercial banks to the guidelines . 29 It is necessary to add specific credit types to legislation; besides that, using the advantages and benefits of lending activity, add regulations of lending on cash flow, bridging loans, leveraged loans, income advance loans to make legal basis and professional guidance for commercial banks to perform, meet the needs of diverse approaches to suit each customer. It is necessary to extend discount of domestic bills, contribute to the development s of commercial banks discount activitie. Add regulations of independent guarantee to raise the guarantor's responsibility, that is a very effective and popular security measures in economic transactions, the guarantor commitment to pay for the guarantee an amount of money as required by the guaranteed party. In the future, it should create a bank guarantee law, such as China, Singapore to create an uniform, unify legal framework, which overcome the lack of coordination between departments, enabling tight legal base to promulgate uniform guidelines for commercial banks to expand the bank guarantee and enhance the control and adjustment of guarantee activities in the commercial banks effectively. 3.2.2 Solutions of development orientation of diversifying credit activity 3.2.2.1 Development orientation of diversifying credit activity in order to meet the capital demand for production and domestic products consumer Orientation of the SBV for commercial banks to diversify credit activity for production, processing-manufacturing and export is to develop lending activity, CCCN and valuable papers discount, bank guarantees and factoring. For production and supporting industrial, develop CCCN and valuable papers discount, bank guarantees and factoring. For production, production - processing associated with domestic products consuming and for agriculture, rural development, develop lending activity, CCCN and valuable papers discount, credit card, bank guarantee. For SMEs, develop lending activity, CCCN and valuable papers discount, credit card, bank guarantee and factoring. 3.2.2.2 Orientation details diversify credit operations through development and implementation of projects to improve the operational efficiency of the banking system in HCM City 30 The formulation and implementation of projects with specific details about diversifying credit activity, facilitating commercial banks to diversify credit activity in line with the development of social- economy in the area, consistent with the objects of restructuring the banking system, diversifying banking services, which focus on improving the quality of traditional banking services and rapidly development of modern banking services. According to that, it is more detailed orientation to the forms of credit to focus on economic development programs in the area, not only allowed to apply for loans, but also expand credit forms, facilitating the diversification of credit activity through particular programs in HCMC area, including: stimulus demand through the investment program, Encouraging the restructuring of urban agriculture, Stabilizing market, Program of the restructuring of export in the city in 2011-2015 and orientation to 2020, plans to develop e-commerce in HCM City in 2011-2015 . 3.2.2.3 Improve the formulation and implementation of plans for credit growth trend to diversify credit activity For commercial banks that have a healthy financial situation, have the capacity to meet the capital requirements of business operations, good liquidity and governance: Based on the orientation of the restructuring scheme of the banking system, annual plans of diversification of credit activity will expand to other forms of credit, to better meet the diversified credit demand for economic-social development in the area of HCM . For commercial banks that temporarily lack of liquidity: According to the solution to 2015 of the banking system restructuring scheme, annual plans of diversifying credit activity will strictly control the expansion of each form of credit, focused on healthy financial condition, first focusing on NPLs and bad credit, focusing on the development of forms of credit which have low risk such as CCCN and other valuable papers discount, development of bank guarantee activity and combined with the method of credit in order to reduce the pressure on liquidity. After years of 2015-2020, when the commercial banks have met safety requirements in accordance with the orientation of the restructuring scheme of the banking system, annual plans of diversifying credit activity will expand forms of credit. For weak commercial banks: According to the solution to 2015 of the banking system restructuring scheme, annual plans of diversifying credit activity will decrease credit balance, focus on NPLs, develop CCCN and other valuable papers discount activity in addition to lending, combined with the syndicated credit. At the same time, settle bad debt through debt purchase, merger, consolidation, acquisition, .. 3.2.3 Solutions for regulating the diversification of credit activity 3.2.3.1 Regulating the supply side of the commercial banks to diversify credit activity 31 Regulate by deploying orientations of diversifying credit activity. Implement priority directions credit for production, for the development of agriculture and rural, exports, supporting industries, production – processing, SMEs . At the same time, meet the capital demand for domestic products consumer. Regulate develop diverse forms of credit, types of credit and methods of credit that appropriate to each particular economic development programs in HCMC area, including: stimulus demand through the investment program, Encouraging the restructuring of urban agriculture, Stabilizing market, Program of the restructuring of export in the city in 2011-2015 and orientation to 2020, plans to develop e-commerce in HCM City in 2011-2015. At the same time, facilitate through active licensing forms of credit, developassistance information for commercial banks to diversify credit activity, build coordination mechanism between commercial banks with the credit guarantee organization for SMEs, enabling commercial banks to diversify credit activity . 3.2.3.2 Regulate the demand side of customer to diversify forms of credit Support customers access to credit capital of commercial banks by providin g credit information of SBV. Complete rules of bank guarantee to assist SMEs to access credit through various forms of credit at commercial banks. Strengthen communication of HCMC branch of the SBV: State Bank HCMC Branch shall strengthen and coordinate with state management agencies to implement conferences to connect business and commercial banks. 3.2.4 Solutions of testing, inspection and monitoring process of diversifying credit activity of commercial banks 3.2.4.1 Complete methods of testing, inspection, monitoring process of diversifying credit activity of commercial banks The SBV needs to give a detailed instruction for inspection and supervision activities which comply with the inspection method based on risk, enhance detection, early warning, risk prevention. Assess the overall risk of each commercial banks and of the banking system and in the area. Determine the level and trend of risk for each form of credit, for each type and method of credit. Assess the effectiveness of the risk management process for each type of credit and consider the financial ability of commercial banks to handle the risks that may occur. 3.2.4.2 Improve inspection and supervision organization model on the principle of focus, unified system from central to local Organize an unity inspection and supervision system from executive leaders to expertise manager to facilitate the implementation of targeted programs for inspecting and supervising all areas, expand the scale and scope of the inspection and supervision of credit forms. Thereby, improve efficiency and promote the role and responsibilities of each expertise department in testing, inspection and supervision system of diversifying credit activity. 3.2.4.3 Detailed guidance on internal control activities of commercial banks in the process of diversifying credit activities 32 The SBV guide more details on the operation of internal control in commercial banks, while the development of new forms of credit, types of credit and new methods of credit, commercial banks have to review, identife risk risks relating to construct, modify and add procedures, internal control provisions timely in accordance with the new forms of credit. 3.2.4.4 Control bad debt limit in the process of developing the form of commercial bank credit The SBV often controls limiting and declining NPLs of commercial banks in the process of developing other forms of credit. Along with facilitating commercial banks to develop forms of credit and improve credit quality, it is necessary to perform analysising, evaluating, determining the true situation of each commercial bank loans in HCMC, especially during the period which have arisen of phenomenon of hiding bad debts. Thereby, they get plans and appropriate measures, including purchasing bad debt. The SBV guides commercial banks enhance controlling the cash flow of customers which have credit relations with them by credit limits, syndicated credit and expansion of each time credit to strictly control the credit cash flow lines. In addition, develop the monitoring and supervising system based on CAMELS standard, risk evaluation system for credit institutions and warning system in banking activities. 3.3 Proposals to implement the solutions 3.3.1 Proposals for Government Promote the implementation of important projects (The scheme of restructuring banking system, the overall scheme of restructuring economy in association with growth pattern transformation towards improving the quality, efficiency and competitiveness in the period of 2013-2020), create complete legal framework for developing market for debt trading, promulgate detailed guidelines on crediting rating and to promote the implementation of support policies for SMEs development. 3.3.2 Proposals for the SBV The SBV should strengthen coordination with other ministries and citys in implementation of the banking system restructure scheme, develop of debt trading between banks, implement monetary brokerage services, often consolidate, improve organization structure and develop human resources training. 3.3.3 Proposals for sate management agencies in HCM City State management agencies should create favorable conditions for commercial banks, customers and promote early research activities for formation of important projects (project of financial center - Ho Chi Minh City construction, project of goods trading centers establishment) in the diversification of credit activity of commercial banks. 3.3.4 Proposals for commercial banks 33 The commercial banks should strictly implement the provisions of law and enhance controlling, internal auditing, completing internal regulations and enhance learning, researching legal regulations and professional knowledge, invest and apply information technology, improve the quality of human resources and strengthen bank governance, fair competition and transparency information in the diversification process of credit activity. 3.3.5 Proposals for customers Customers should actively establish business plans, the corporates should step by step audit financial statements, complying with legal regulations and enhance the transparency of business activities, capacity management, and corporate governance, invest in appropriate information technology to access gradually modern forms of credit of commercial banks. CONCLUSION The thesis "State management in diversification of credit activityof banks shares trade in the area of Ho Chi Minh City to 2020" has achieved a number of results as follows: First, systematize issues of diversifying credit activity and specify the content of state management in diversification of credit activity. Determine the evaluation criteria, the factors affecting to the results of state management in diversification of credit activity of commercial banks. Refer to the experience of Asian countries with similar conditions to Vietnam and combines international experience with the specific situation in Vietnam. Second, by analyzing the situation, the thesis determined that credit activities of commercial banks in HCM City have not been really diversified and state management in diversification of credit activity of commercial banks in HCM City in the period of 2006-2012 still have certain limitations by assessing the results of state management in diversification of credit activity of commercial banks in HCM City. Therefore, improvement of state management in diversification of credit activity of commercial banks in HCM City by the particular solution is a critical requirement. Third, the strategic direction of economic development, of the banking industry development to 2020, the economic context in the current period and the banking system context that is in the process of restructuring activities, are background for the thesis to determine targets, view and orientation of state management in diversification of credit activity of commercial banks. Thereby, the thesis proposes complete solutions for state management in diversification of credit activity of commercial banks in HCM City to 2020. 34 State management in diversification of credit activity is a fairly wide content that has many complicated problems, so the thesis tried to show the main content, but there are still certain shortcomings due to limited study time. In addition, it needs to be contributed, guided by teachers, scientists, managers and experts in the banking sector, the author will try to improve the defects in the later study, contributing to the success of state management in diversification of credit activity of commercial banks in HCM City to 2020 .
LIST OF PUBLISED PAPERS RELATED TO THE THESIS
1. Ha Van Duong (2009), Selecting the plan and the general solution to diversify business activities of commercial banks, Journal of Political Science, (5), p.46-52. 2. Ha Van Duong, Truong Van Khanh (2012), SME access to and use of loans through activities of credit guarantee, Vietnam Journal of Supply Chain Insight, (26), p.98-101. 3. Ha Van Duong, Truong Van Khanh (2012), Some issues of credit activities, The Journal of Economic Forecasts (23), p.46-49. 4. Ha Van Duong (2013), Limiting risk in bank credit operation, Journal of Economic Forecasts, (2), p.27-30. 5. Ha Van Duong , Truong Van Khanh, Tram Bich Loc (2013), Promoting the role of the credit activities of joint stock commercial banks in Ho Chi Minh City, Saigon University Journal, (13), p.63-70. 6. Ha Van Duong (2013), Solutions to limit overdue loans in Vietnam commercial banks, Journal of Banking Technology, (85), p.44-50. 7. Ha Van Duong (2013), Solutions to developet credit in Ho Chi Minh City , Journal of Banking Technology, (88), p.10-17.