Development of export credit at Vietnam bank for agriculture and rural development

Large number of banks, fierce competition among banks, strategies to

expand market share and market penetration of domestic banks and financial

institutions. Besides, it is the joining of foreign banks.

- Agribank's export credit focuses mainly on the export of agricultural,

forestry and fishery products. This is an area of potential risk; the agricultural

export sector always faces increasingly complex and strict trade barriers,

international standards for products produced and exploited. The tools to prevent

and limit risks in agriculture are lacking, so the investment efficiency of credit in

this area is still difficult.

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developments in both quantity and quality. The thesis has clarified the limitations and causes in the export credit development at Agribank. This is the basis for giving practical solutions to the export credit development in particular and credit activities of Agribank in general during the integration period. Thirdly, the proposed solutions of the thesis were grounded and based on the context of international integration. The thesis proposed key solutions and some support solutions to develop export credit at Agribank. This is the basis for Agribank to apply to develop its export credit, Specifically, the solution group of the thesis: Firstly, strengthen market share expansion, improve customer policy in the export credit development. Secondly, mobilize capital and enhance the amount of foreign currency to meet the demand for loans and export payments. Thirdly, prevent risks in loans and payments at Agribank; handle and prevent risks in export lending. Additional solutions groups: improve technology quality, export lending process; increase information; HR solutions. 5. Structure of the thesis 5 In addition to the introduction, conclusion and list of research works of research student related to the thesis topic, the list of references, the thesis consists of 4 chapters: Chapter 1: Overview of research situation and methods related to the thesis topic. Chapter 2: Theoretical basis for export credit development at commercial banks. Chapter 3: Current status of export credit development at Agribank. Chapter 4: Orientation and solutions for export credit development at Agribank. CHAPTER 1 OVERVIEW OF RESEARCH SITUATION AND METHODS RELATED TO THE THESIS TOPIC 1.1. RESEARCH WORKS RELATED TO THE THESIS 1.1.1. Studies on Agribank's business strategy and credit operations 1.1.2. Studies related to export credit at commercial banks 1.1.3. Studies on credit risk management 1.1.4. Studies related to factors affecting the export credit of commercial banks 1.1.5. Studies related to green credit 1.2. RESEARCH GAPS 1.3. RESEARCH METHODS 1.3.1. Data collection method 1.3.1.1. Secondary data: - The data on organizational structure and team, business activities are mainly taken from the annual business result report of Agribank; annual business result report of VCB, BIDV, Vietinbank. The figures of these reports are mainly by year from 2012 to 2018. 6 - The data on the system of Vietnamese commercial banks and state-owned banks are synthesized from data from the Vietnam State Bank website and specialized journals such as Banking Magazine, Finance magazine, Market - Finance magazine, etc. 1.3.1.2. Primary data: To learn, analyze and assess the current status of export lending activities of Agribank. On that basis, collect data to build questionnaires, directly survey opinions of existing customers and potential customers of Agribank 1.3.2. Methods of analysis and forecast 1.3.2.1. Methods of economic statistics: 1.3.2.2. Comparative method: 1.3.2.3. Forecast method: CONCLUSION OF CHAPTER 1 From the overview of published research related to the thesis, the author has set up 4 research questions to be the basis for determining the research direction of the thesis. The thesis inherits research works that have important implications for the export credit development of commercial banks, on that basis to determine research methods to accomplish the research objectives of the thesis. CHAPTER 2: THEORETICAL BASIS FOR EXPORT CREDIT DEVELOPMENT AT COMMERCIAL BANKS 2.1 GENERAL OVERVIEW OF EXPORT CREDIT ACTIVITIES OF COMMERCIAL BANKS 2.1.1. The concept of credit According to the author of the thesis: “Credit is a concept that shows the relationship between lenders and borrowers. In this relationship, the lender is responsible for transferring the right to use money or goods to the borrower for a certain period of time. The borrower is obliged to pay the amount or value of the 7 borrowed goods when the loan repayment term comes with or without an interest”. 2.1.2. The concept of export credit of commercial banks The author has generalized the concept of export credit as follows, “Export credit is a form of credit in which commercial banks directly lend money to export enterprises to supplement working capital, implement export business projects or perform indirect lending, guarantee enterprises, in order to contribute to financial security for export enterprises to carry out their export activities”. 2.1.3. Forms of export credit 2.1.3.1 Loans for production and trading of export goods 2.1.3.2 Discount bill of exchange 2.1.3.3 Discount a set of goods' documents 2.1.3.4 Credit advances to exporters 2.1.3.5 Factoring 2.1.3.6 Bank guarantee 2.1.4. Export credit process of commercial banks 2.2. EXPORT CREDIT DEVELOPMENT AT COMMERCIAL BANKS 2.2.1. Perspectives of export credit development From a development perspective, the thesis can generalize the export credit development as follows: The export credit development is the fact that banks increase loan balance, discount, guarantee, factoring for export activities; At the same time, banks must diversify export credit products, combine to improve the quality of export credits to better meet customer needs in order to achieve the bank's target. 2.2.2 Criteria to reflect the export credit development of commercial banks 2.2.2.1. Qualitative criteria Export credit process 8 Compliance with export credit principles Customer satisfaction level on export credit activities of commercial banks. 2.2.2.2. Quantitative criteria  Criteria to evaluate the export credit development of commercial banks (1) Scale of sales, export credit balance, number of customers, export credit market share: Loan sales for export enterprises: Export credit debit balance: Number of customers having export credit relations with commercial banks: (2) Export credit growth rate of commercial banks Growth rate of loan sales for export enterprises: Credit debit balance growth rate for export enterprises: Customer growth rate of export enterprises: (3) Indicators reflect the structure of export credit debit balance Export credit structure by manufacturing industry Structure of export credit debit balance by loan products Export credit structure by term  Criteria to evaluate the quality of export credit products Bad debt ratio and potential debt of capital loss for export credit Income from export credit activities Performance using export credit capital  Criteria to evaluate the export credit through factors affecting the environment of export credits (green credit criteria) 2.2.3. Management of export credit activities of commercial banks 2.2.3.1. The concept of management of export credit activities 9 Management of export credit activities of commercial banks is the activity of managing, inspecting and supervising the application of policies and regulations of credit institutions and laws of the state on credit activities, ensuring credit activities, complying with regulations, limiting to the lowest risks and bringing optimal performance in this activity. 2.2.3.2 The objective of managing export credit activities of commercial banks Develop export credit activities in both depth and width. 2.2.3.4. Content of managing credit activities at commercial banks Manage credit customers Control credit activities at commercial banks Manage structure and sector of export credit Classify debts and set up risk provisions 2.3. FACTORS AFFECTING THE EXPORT CREDIT DEVELOPMENT OF COMMERCIAL BANKS 2.3.1. External factors 2.3.1.1 International rules for export lending activities 2.3.1.2. Group of factors in the legal environment 2.3.1.3. Group of factors from customers - Qualifications and ethics of the leadership team - Business strategy of enterprises - Financial ability of enterprises 2.3.1.4. Other factors - The political, social and economic environment inside and outside the country - Exchange rate 2.3.2. Group of factors from the bank granting export credit 2.3.2.1. Credit policy of the bank 10 2.3.2.2. Credit processes 2.3.2.3. Qualifications of export credit staffs 2.3.2.4. Credit information 2.3.2.5. Capital work 2.3.2.6. Internal inspection and control 2.4. EXPERIENCE OF THE EXPORT CREDIT DEVELOPMENT OF SOME COMMERCIAL BANKS IN VIETNAM 2.4.1. Activities of China Export-Import Bank (EXIMBANK in China) 2.4.2. Activities of Export-Import Bank of Malaysia Berhad 2.4.3. Export credit activities of Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) 2.4.3. Export credit activities of The Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) 2.4.3. Export credit activities of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) 2.4.4. Lessons learned about the export credit development for Agribank - Pay attention to policies to support exports, in which export credit instruments are used as an important method to promote long-term and sustainable export growth. Export credit in countries is made through an organization that is Export-Import Bank, or through two organizations: Export- Import Bank and Export Credit Insurance Company. - All countries have carried out export credit insurance operations and have paid attention to this role. - Diversify import and export credit service forms and products to suit the characteristics of each industry, each economic sector and development orientation. 11 - Programs for export credit at Vietnamese commercial banks are aimed at key commodities: agricultural products, seafood, rubber, coffee, leather shoes, textiles,... CONCLUSION OF CHAPTER 2 The thesis has clarified the theory of export credit development at commercial banks. In particular, show the concept of export credit development; criteria for measuring export credit development; analyze the factors affecting the export credit of commercial banks; especially systematize the theory of management in export credit activities, content of managing export credit activities of commercial banks. The thesis has studied the experience of export credit development of a number of domestic and foreign commercial banks such as Export-Import Bank of Malaysia Berhad; Export-Import Bank of China; BIDV, Vietinbank, Vietcombank. Lessons learned for Agribank in the export credit development 12 CHAPTER 3 CURRENT STATUS OF EXPORT CREDIT DEVELOPMENT AT AGRIBANK 3.1. THE PROCESS OF FORMATION AND DEVELOPMENT OF VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT 3.1.1 History a. General introduction Established on 26 March 1988, operating under the Law on Credit Institutions of Vietnam, until now, Agribank Vietnam is a 100% commercial bank owned by the state budget, plays a key and important role in the economic development of Vietnam, especially investment in agriculture, farmers and rural areas. As of 31 December 2018, Agribank continued to maintain the leading position of commercial banks in the ranking of 500 largest enterprises in Vietnam in 2016 (VNR 500) with scale: Total assets: 1.282.448 billion Vietnam dongs. Total capital: 1.186.228 billion Vietnam dongs. Charter capital: 30.473 billion Vietnam dongs. Total debit balance: 1.006.442 billion Vietnam dongs (debit balance accounted for 70,5%) Operation network: nearly 2,300 branches and transaction offices throughout the country, Cambodia Branch. Personnel: nearly 40,000 employees. 3.1.2. Organizational structure 3.1.3. Main business results of Agribank 3.1.3.1. About total assets 3.1.3.2. About mobilized capital and credit debit balance 3.1.3.3. Non-credit activities 3.1.3.4. Profit of the bank 13 3.2. CREDIT ACTIVITIES AT AGRIBANK 3.2.1. Results of credit activities 3.2.2. Credit structure by industry at Agribank in Vietnam 3.3. CURRENT STATUS OF EXPORT CREDIT DEVELOPMENT AT AGRIBANK IN THE PERIOD OF 2012-2018 3.3.1. Objects and conditions for export credit activities of Agribank 3.3.1.1. Objects of export credit (1) Issuing export credit for enterprises to purchase, produce and process exports of groups: * Group of agricultural, forestry and aquatic products:: * Group of handicraft goods: * Group of industrial products: (2) Vietnamese enterprises participate in the export of goods and services on the list of priority items to encourage to export and promote the advantages of Vietnam. (3) Foreign customers can also get loans to buy goods and services on the list of encouraged goods of Vietnam, but to borrow capital they must have the guarantee from the Government or the Central Bank of the buyer. 3.3.1.2 Conditions for issuing export credit 3.3.2. Results of export credit activities 3.3.2.1. Situation of general export credit debit balance of Agribank Export credit of Agribank accounts for a small proportion of total debit balance of the whole system The growth rate of outstanding export credit balance over the years at Agribank was quite clear from 2015-2018; There was a slight decrease in 2014- 14 2015. In 2016, the growth rate of outstanding export loans was 4.33%. In 2018, the growth rate was 5.91%. 3.3.2.2. The situation of export debit balance by term at Agribank 3.3.2.3. The situation of export debit balance by industry 3.3.2.4. The situation of export credit debit balance by forms 3.3.3. Current status of export credit quality at Agribank 3.3.3.1. Analysis of the criteria for evaluating the export credit quality 3.3.3.2. Green credit for export support at Agribank 3.3.3.3. Export credit management at Agribank * Customer management activities Agribank has always focused on building and developing relationships with customers, business partners and stakeholders to develop export credit and customer care activities to develop markets and expand customer network for export credit activities. In the period of 2012-2017, the number of customers with credit and export payment relations at Agribank increased markedly, in 2016, there were 1606 customers with credit and international payment relations, in 2018, there were 2071 customers, up 13,5% compared to 2017. However, this number of customers is still quite modest. Export enterprises have a positive evaluation of export credit activities at Agribank * Risk management in export credit development The issue of export credit risk of Agribank in the period of 2012-2017 has always been concerned. Agribank has constantly renewed credit risk management in general and export credit in particular according to the requirements of sustainable, safe and integrated development. 3.4. EVALUATION OF THE IMPACT OF FACTORS AFFECTING EXPORT CREDIT AT AGRIBANK 3.4.1. Evaluation of the impact of factors on export credit at Agribank 15 3.4.1.1. The legal environment factor In the period of 2012-2018, the export of domestic products that cannot be produced is paid attention to by the state, it created conditions for development. So that it will be given the priority to mechanisms and interest rates for export lending. 3.4.1.2 Factors from customers (1) Qualifications and ethics of owners of enterprises (2) The ability and willingness to repay debts of export enterprises who are borrowing at Agribank 3.4.1.3. Factors of Agribank  Credit policy of Agribank  Ability to meet capital needs for borrowing needs for export  Qualifications and staffs of export credit  Process and information of export lending activities  Customer marketing  Inspection work after disbursement: 3.4.2. Customers’ assessment for export lending activities at Agribank 3.4.2.1 Objectives of the survey Perform customer survey and assessment for the quality of service provision of export lending activities at Agribank (a number of typical branches) from that, we can get the customers' opinions and comments about this activity of branches, the good points are highly appreciated by the customers as well as the limitations that make the customers unhappy. On that basis, it is proposed to improve mechanisms and policies for export lending products to satisfy customers' needs. 3.4.2.2 Survey objects and methods Objects are enterprises that have been borrowing capital to serve export business activities at Agribank's branches and export enterprises that Agribank's 16 branches are marketing, areas of enterprises include: industry, agriculture, fisheries, trade and services 3.4.2.3 Survey results (Appendix no. 2) Total votes issued: 200 votes, total votes collected: 197 votes, of which 148 enterprises have been borrowing capital, 49 enterprises are in the process of marketing.. All 197 enterprises, they have a relationship of borrowing with at least one bank. 3.5. GENERAL EVALUATION 3.5.1 Achieved results 3.5.1.1. Export credit growth rate of Agribank Vietnam has grown strongly in the past time. 3.5.1.2. The export credit sectors of Agribank Vietnam support for key sectors of Vietnam 3.5.1.3. Export credit of Agribank has made the effective contributions to the implementation of rural agricultural development solutions. 3.5.1.4. The quality of export credit of Agribank has improved 3.5.2 Limitations + The export credit market share is still limited, customers of Agribank mainly focus on purchasing and processing agricultural products; lending activities for the fisheries sector are narrowed; lending activities for industry, electronics, supporting industry, processing industry and high-tech applications for export are not wide. The capital provision for export credit has not been diversified: Agribank's main export credit focuses on lending to producers of rice, coffee, rubber, seafood, catfish processing, etc ...; the participation in the value chain is still limited. The issuing of export credit from planting to processing and consumption is not yet interested by Agribank. + Export lending products are still traditional, not yet diversified: it only focuses on some traditional methods such as lending each time and lending on a 17 limit, and other forms of lending have not been paid attention to apply, therefore, it does not meet the diverse needs of customers. Export lending activities are not closely linked to the development of products and services in the modern banking model. + Analyze according to customer details, there are still many potential risks when the debt balance focuses mainly on a number of large customers, it has not focused on meeting the capital needs of the type of private enterprises or small establishments; the number of customers is still low, the structure of investment sectors is still monotonous, there is no investment in parts of foreign-invested enterprises. + Export credit capital has not fully met customers' requirements: Currently, the demand for loans from export enterprises is increasing while the bank has not had a large capital source to prioritize this sector. In addition, with capital mobilized from residents and economic organizations, the medium and long-term capital is still low, the amount of payment deposits is not high, it made difficult to implement medium and long-term financing projects with high value. + The collection of information about foreign partners (partners of customers) is still limited and not properly focused, this affected the appraisal quality when lending as well as did not meet the needs of customers. + The handling of bad debt is still inadequate: Agribank's method of handling bad debts is mainly provision for credit risk to offset losses in export credit activities. The methods of direct debt collection from customers are limited; Export credit insurance has not been paid much attention; the provision for credit losses affected the profitability of Agribank. In summary, through the analysis of current situation of export lending at Agribank during the period of 2012 - 2018 by analyzing methods from general to specific view and assessing the indicators, we see Agribank has achieved relatively good results in investing in export lending activities. However, the 18 above mentioned drawbacks made the development of export lending in Agribank still has not reached the expected level. In the coming time, Agribank needs practical solutions to improve and further enhance the scale and quality of export lending activities, contribute to increase income and become a versatile modern bank. 3.5.3. Causes 3.5.3.1. Causes from export enterprises 3.5.3.2. Causes from Agribank CONCLUSION OF CHAPTER 3 In export credit activities, Agribank focused on agricultural export loans as the key; supporting industries, processing industry, high-tech application, production, processing and consumption of clean agricultural products, supporting start-up businesses ... are being focused on developing by Agribank. Agribank has enhanced credit investment in agricultural products in the form of purchasing and processing. However, in addition to increasing the export credit balance, Agribank focused on diversifying export loans, preferential export loans... In order to develop export credit, Agribank needs to resolve well the limitations and challenges of export credit; carefully analyze the factors affecting export credit development to have appropriate solutions for developing its export credit, when the market is fiercely competitive today 19 CHAPTER 4 SOLUTIONS FOR EXPORT CREDIT DEVELOPMENT AT AGRIBANK 4.1. THE CONTEXT OF THE WORLD AND THE COUNTRY AFFECTS THE EXPORT CREDIT DEVELOPMENT AT AGRIBANK 4.1.1. The world context affects the export credit development China–United States trade war Technology 4.0 and the strong development of electronic banking services and digital banking services in the context of globalization. Risks in banking operations 4.1.2. Domestic context affects export credit development The process of reforming the banking system associated with the handling of bad debts of the banking system under the Government's direction and the state bank until 2020 Vietnam's commitments in the integration process Requirements for compliance with standards Human resources meet requirements: 4.2. Advantages and disadvantages for export credit development at Agribank. 4.2.1. Advantages - Export market size increased sharply, in the period of 2011-2018 is a period of outstanding growth in export turnover - Export enterprises increase both in quantity and quality. - In the field of credit, many specific policies related to agriculture and export supporting industries are implemented such as pilot lending for agricultural development, lending for rice purchase, lending for aquaculture, purchasing, processing, exporting seafood, lending to support offshore fishing fishermen, lending to develop garment industry, handicrafts, ... 20 - Agribank has strong financial capacity, wide network, is a branded bank; Abundant human resources, quality is improved; Large traditional customer market; Modern information technology system, technology application in management and administration. 4.2.2. Disadvantages - Large number of banks, fierce competition among banks, strategies to expand market share and market penetration of domestic banks and financial institutions. Besides, it is the joining of foreign banks. - Agribank's export credit focuses mainly on the export of agricultural, forestry and fishery products. This is an area of potential risk; the agricultural export sector always faces increasingly complex and strict trade barriers, international standards for products produced and exploited. The tools to prevent and limit risks in agriculture are lacking, so the investment efficiency of credit in this area is still difficult. - Although the legal environment has many policies to facilitate export development, in fact, the policy documents that facilitate the export credit development are still limited, it is not specific to the commercial banking system. Preferential policies still focus only on state export credits implemented by development banks. - The coordination between banks and relevant agencies is not synchronized with export credit. There is no professional agency in providing financial information of exporters, the source of financial information is still based on the financial statements provided by enterp

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