VIETNAM NATIONAL UNIVERSITY, HANOI
SCHOOL OF BUSINESS
CONSUMER LENDING IMPROVEMENT – THE CASE STUDY OF TECHCOMBANK
MASTER OF BUSINESS ADMINISTRATION THESIS
TABLE OF CONTENTS
ACKNOWLEDGEMENT ABSTRACT
TÓM TẮT
TABLE OF CONTENTS
LIST OF FIGURES AND TABLES EXECUTIVE SUMMARY
INTRODUCTION
1 Background to the issue …………………………………. 9
2 Problem Statement and Research Objectives of the study 10
3 Scope and Limitation of the Research ………………….. 11
4 Research Methodology …………………………………. 12
5 Research Structure ……………………………………… 12
Chapter 1: COMMERCIAL BANK’S CONSUMER LENDING – THEORETICAL FRAMEWORK FOR ANALYSIC
1.1 The Basis of Bank Lending ……………………………. 14
1.2 The Basis of Consumer Lending ………………………. 17
1.2.1 The Concept of Consumer Lending …………………….. 17
1.2.2 The Nature of Consumer Lending ……………………… 18
1.2.3 The Types of Consumer Loans ………………………….. 19
1.2.4 The Effects of Consumer Lending ………………………. 24
1.2.5 The Factors Impacts on Consumer Lending …………….. 25
1.3 The Process of Consumer Lending…………………….. 27
1.3.1 Receiving application and collecting information ……… 28
1.3.2 Evaluating applications …………………………………. 29
1.3.3 Approving loans ………………………………………… 32
1.3.4 Managing and collecting loans ………………………….. 33
1.4 Precautions to be taken in granting consumer loans ….. 34
1.5 Pricing and structuring of consumer loans ………………… 35
1.5.1 Loan pricing ……………………………………………… 35
1.5.2 Loan structuring ………………………………………… 37
1.6 Consumer Lending Quality ……………………………. 37
1.6.1 Consumer Lending Quality from Different Perspectives .. 37
1.6.2 Measuring the Quality Consumer Lending ……………… 39
Chapter 2: CURRENT SITUATION OF CONSUMER LENDING AT TECHCOMBANK
2.1 Techcombank profile ……………………………………. 44
2.1.1 History and Development ………………………………… 44
2.1.2 Vision and Mission ……………………………………… 46
2.1.3 Techcombank‟s Organization …………………………… 46
2.1.4 The Products …………………………………………….. 47
2.1.5 Achievements ……………………………………………. 47
2.2 Current Situation of Techcombank’s Consumer Lending 47
2.2.1 Consumer Lending Process ……………………………… 47
2.2.2 Consumer Lending Quality ……………………………… 52
2.2.3 Quality of consumer loans ………………………………. 56
2.2.4 Quality of Service ……………………………………….. 58
2.3 Assessment of the Techcombank’s Consumer Lending Quality …………………………………………………… 62
2.4 Development Trend of Techcombank’s Consumer Lending ………………………………………………….. 66
Chapter 3: CONCLUSIONS AND RECOMMENDATIONS
3.1 Conclusions ……………………………………………… 68
3.2 Recommendations ……………………………………….. 69
3.2.1 Developing the Outstanding of Consumer Loans ………… 69
3.2.2 Increasing in Capital Mobilization ……………………….. 70
3.2.3 Clarifying the Responsibility of Professional Divisions …. 70
3.2.4 Applying and Revising the Credit Scoring System ………. 71
3.2.5 Applying Up-to-date Technology and Modern Equipments 72
3.2.6 Following Some Tactics in Evaluating Applications and
Mitigating Credit Risk …………………………………… 73
3.2.7 Expanding the Key Performance Indicators (KPIs) ……… 74
3.2.8 Increasing the Quality of Information Provided by the Credit Information Centre ……………………………… 74
3.2.9 Enhancing Human Resource Quality …………………… 74
3.2.10 Responding to Changing Consumer Need and Purchasing
Behavior ………………………………………………… 76
3.3 Limitations of the Research and Recommendations for
Further Study ………………………………………………………… 77
REFERENCES…………………………………………….. 79
APENDIXES………………………………………………. 81
APPENDIX 1- QUESTIONNAIRE
APPENDIX 2- TECHCOMBANK ORGANIZATION CHART APPENDIX 3: TECHCOMBANK‟S PRODUCTS
LIST OF FIGURES AND TABLES
Figures
Figure 1.1: Credit process
Figure 2.1: Techcombank‟s Current Approving Process
Figure 2.2 : Techcombank Outstanding of Cunsumer and Commercial Loans 2005-2008
Figure 2.3: Techcombank‟s non-performance loan situation from 2005 to 2008
Figure 2.4: Portfolios and quality of consumer loan by products in 2008
Figure 2.5: Satisfaction marks on products
Figure 2.6: Level of Techcombank meeting clients‟ expectation
Figure 2.7: the ratio of Non-performance loan/ outstanding of Techcombank 2007
Tables
Table23.1: Some Main Figures of Techcombank
Table 2.2 : Techcombank‟s outstanding of consumer and commercial loans
Table 2.3: Techcombank‟s non-performing loan situation from 2005 to 2008
Table 2.4 : Portfolios and quality of consumer loan on products in 2008
EXECUTIVE SUMMARY
This research mentions to both theory and empirical study of consumer lending. After revising the basis of bank lending, the basis of consumer lending including concepts, nature, types, effects of consumer lending and impact of technology on consumer lending, is focused. The common process of consumer lending is deeply researched in the writing containing four stages such as Receiving application and Collecting information, Evaluating application, Approval and (Managing and Collecting loans. At each stage, the readers can approach concise matters of the procedure which is implemented by banks from the beginning to the end of consumer lending process. Especially, the thesis also analyses and compares the two primary methods of evaluating loan application such as judgmental analysis and credit scoring system. Next, the precautions to be taken in granting consumer loans, the pricing and structuring loans are also mentioned. The quality of consumer lending is paid much consideration by the author. Additionally, the writing discusses the quality of consumer lending and several quantitative and qualitative criteria to measure the consumer lending quality. Moreover, based on the study of the process and quality of consumer lending, the thesis raises a case study of the Vietnam Technological and Commercial Joint Stock Bank (Techcombank) in order to better understand the circumstance. Follow the overview of Techcombank, the writing mentions to the consumer lending process, quality as well as the assessment of its customer lending performance. Lastly, some recommendations for a development of Techcombank’s consumer lending in terms of market, procedure and quality are proposed.
INTRODUCTION
1. Background to the issue
Based on the aim of credit using, financial institutions divides their credit portfolio into two types of loans namely business loans and consumer loans. Business credit is credits supplying for customers to support their business activities such as building workshops, purchasing machinery, materials or goods or other expenditure in trading and producing process. The subject of main customers of commercial loans is enterprises. Besides, financial institutions also provide loans to individuals or their families to help them cover living cost as medical fee, learning expenses, buying houses, cars or motorcycles, etc called consumer loans. The second type of lending activity is also the subject of the research.
When income and living standard increase, it certainly leads people to the change in spending habits, thus they are oriented to spend more. Again, consumer debt is an element encouraging the economy growth. Since the 1920s, American manufacturers have relied ever-increasingly on consumer loans to absorb the tremendous productivity increases of mass production, in other words, consumer credit made mass consumption possible. To financial institutions, consumer lending is of the most profitability with reasonable risks.
Vietnam has witnessed a high growth rate of people, improved average earnings and considerable changes in spending behavior of individuals in recent time. In particular, the young age people who have a stable occupation and income, demands in more consumptions. Therefore, looking for the financial solutions such as bank‟s consumer loans is completely understandable. Identifying that market trend, understanding the role and prosperity of this lending category, banks continuously increase the
proportion of consumer loans in their credit portfolio. Nevertheless, for a firm development of consumer lending, it is vital for Vietnamese commercial banks to have overview and deep insight in consumer lending activity, in order to evaluate the quality of the bank‟s consumer lending situation and give out some prompt and reasonable solutions.
In this context, the Vietnam Technological and Commercial Joint Stock Bank – Techcombank is selected as a case study for this research. Techcombank is customer driven institution supplying a wide range of high quality services to customers. In terms of individuals, Techcombank provides a variety of financial services including demand deposit accounts, savings, loans, payments, credit and debit cards, investment, guarantees, and safe custody facilities. The key products to these customers are cards, personal loans, and home loan. These assets obtain over 30% of Techcombank‟s loan portfolio. However, along with the current rivals and new comers of advanced technology, professional management and sound strategy, this bank will be under the pressure of harder competition. Given these facts, it is necessary for the bank to clearly define weaknesses and strengths of its consumer lending performance and address suitable solution for not only the improvement of consumer lending quality but also the expansion of this activity.
2. Problem Statement and Research Objectives of the study
Obviously, the consumer lending is implemented by almost commercial banks. However, there is a lack of efficiency in this activity, for instance, complicated procedure, time-consuming lending process, shortage and imperfection of information, lack of regulation, inexperienced staff, poor loan monitor, etc. The consequences are high proportion of un-performing loans and risk problems of capital loss. And Techcombank is a bank of high percentage of consumer loans in the credit portfolio and individual
customer‟s targeting, the research attempts to explore the process and the quality of consumer lending, thus, propose some recommendations through analyzing a case study of Techcombank. The research objectives are:
To review the fundamental issues related to consumer lending in order to study the necessity and complexity of controlling quality of consumer lending;
To enumerate the precautions to be taken in evaluating consumer loan applications;
To analyze the current situation of Techcombank‟s consumer lending in order to identify the problems exisiting and new findings regarding to the consumer credit activities and quality controls; And finally, based on these new findings and the development trend of the Techcombank,
To propose some solutions and recommendations to improve the quality of consumer lending and to expand the bank‟s consumer lending market in the future.
3. Scope and Limitation of the Research
The research focuses only on the literature of consumer lending and process of consumer loan applications. It does not cover the business lending or commercial lending of financial institution.
Consumer lending is carried out by most financial institutions, however, the research is aimed at examining only the process and evaluating the quality of the consumer lending through a specific case of the Vietnam Technological and Commercial Joint Stock Bank; other financial institutions are excluded.
The quality of data is not updated enough (for analysis the Techcombank performance, the data is collected from up to the year of 2008).
Data used for assessing consumer lending quality is not sufficient because information is extracted from the bank‟s survey, not the author‟s survey.
Only secondary data is used for this writing.
4. Research Methodology
Research Approach and Strategy: The paper uses the inductive approach, in which data are collected, analyzed and interpreted to answer the research questions. The researcher has chosen the research strategy of carrying out a case study, which involves an empirical investigation of a particular bank, Techcombank. It allows the researcher to gain a rich understanding of the on-going consumer lending performance of a Vietnam‟s commercial bank within its real context.
Data collection methods: The study exploits the secondary data which are acquired through official data records of the selected bank, bank‟s profile, bank‟s former research findings, bank‟s business reports, and individual customer satisfaction survey of Techcombank. Magazines, newspapers and Internet are among other potential sources of secondary data.
5. Research Structure
Given the research objectives, the study is organized as follows:
Introduction: This chapter includes the background of the study, problem statement, research objectives and methodology used to obtain data and information, scope and limitation of the research.
Chapter 1 – Theoretical Framework: This chapter provides a theoretical framework for the study of bank lending in general and consumer lending in particular. The chapter also emphasizes on how commercial banks process consumer loan application and how they measure the quality of their consumer lending activity.
Chapter 2 – Case Study of Techcombank: This chapter identifies the current performance of consumer lending in Techcombank; and analyzes the procedures of processing consumer loan which are implemented by related departments. Apart from an illustration of the Techcombank‟s current approving process, a comparison of the Techcombank‟s consumer lending quality with the benchmark (the Hong Kong and Shanghai Bank Coporation) is implemented to investigate strong and weak points of the bank. Especially, the quality of consumer loans of this bank is also assessed by the customer satisfaction survey conducted by the bank itself.
Chapter 3 – Conclusions and Recommendations: This chapter provides conclusions and suggestions on the issue to the readers for their own assessment. Conclusions on the issue are summarized; recommendations for improvements and expansion of consumer lending of Techcombank and other banks are listed. The chapter also concludes the limitation of the paper and gives recommendations for further research.
Chapter 1:
COMMERCIAL BANK‟S CONSUMER LENDING – THEORETICAL FRAMEWORK FOR ANALYSIC
This chapter will firstly study the basis of bank lending and the more details in basis of consumer lending activity, for example, concept, nature, types, effect of consumer lending. The process and measurement of consumer lending are also mentioned.
1.1. The Basis of Bank Lending
Financial intermediation is the focus of lending. It is the process of how surplus funds are collected and then dispersed through the financial markets, from surplus units to deficit units. For many decades, primarily banks carried out this function.
The basic principles of good lending are safety of loan, suitability of loan purpose and profitability (Weerasooriya, 1998).
Safety of loan- This principle requires that a loan is granted to only that borrower who is considered safe. A safe borrower is one who is of good character, is financially sound and has the ability and willingness to repay the loan. In addition, the lender should account for meeting an unexpected emergency. Such an emergency could arise when assumptions about the borrower turn out to be wrong, or when circumstances change so dramatically that assumptions made when the loan is made do net remain relevant. Lending institutions wherefore often require a back-up for the loan in the form of collateral security. The collateral serves as a safety valve or insurance against unforeseen developments.
Suitability of loan purpose- a loan can be given for any valid purpose. A valid purpose is one that is legal and conforms to the lending policy of the bank. A bank cannot lend for an activity that is not legal. Can you imagine a bank giving a loan for an illegal activity, such as the heroin trade? It cannot, because such trade is not legal. Other purposes for which a financial institution cannot lend include gambling. If a bank starts financing gamblers, then it world soon go into liquidation! Suitability of purpose is also important for the safety of the loan. If a loan is granted for an illegal purpose, then the lender may not be able to recover the money because the case may not stand in any court of law. A purpose may be perfectly legal and valid, yet a lender may still refuse to finance it. This may occur where the loan purpose is outside the lending policy of that institution.
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