The Situation Of Implementation Of The Business Credit Assessment And Loan Process At Agribank.docx

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THE SITUATION OF IMPLEMENTATION OF THE
BUSINESS CREDIT ASSESSMENT AND LOAN
PROCESS AT AGRIBANK

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TABLE OF CONTENT
ACKNOWLEDGEMENTS............................... Error! Bookmark not defined.
TABLE OF CONTENT....................................................................................... 1
INTRODUCTION................................................................................................ 5
1. Rationale.................................................................................................. 5
2. Objectives ................................................................................................ 5
3. Methodology............................................................................................ 5
3.1. Collecting data and information.............................................................. 5
3.2. Approaches ................................................................................................ 5
4. Scope ........................................................................................................ 6
5. Research structure.................................................................................. 6
CHAPTER I: OVERVIEW OF THE CORPORATE CREDIT
ASSESSMENT AND LOANS PROCESS ......................................................... 7
1.1. OVERVIEW OF CREDIT PROCESS FOR BUSINESS........................... 7
1.1.1. The concept of credit process............................................................... 7
1.1.2. Basic credit process............................................................................ 7
1.2. CORPORATE CREDIT OVERVIEW AND CORPORATE CREDIT
APPRAISAL................................................................................................... 17
1.2.1. Enterprise credit concept ................................................................ 17
1.2.2. Principles of Corporate Credit ....................................................... 18
1.2.3. Requests for applying for corporate credit ................................... 19
1.2.4. Types of businesses that are granted credit................................... 19
1.2.5. Business Credit Classification......................................................... 19
1.2.6. Business credit appraisal method ................................................... 20
1.2.7. Purpose of credit appraisal ............................................................. 20
1.2.8. Meaning of business credit appraisal............................................. 21
CHAPTER II: THE SITUATION OF IMPLEMENTATION OF THE
BUSINESS CREDIT ASSESSMENT AND LOAN PROCESS AT
AGRIBANK BAC GIANG BRANCH ............................................................. 22
2.1. GENERAL ABOUT AGRIBANK BAC GIANG BRANCH .............. 22
2.1.1. Organizational structure and management apparatus ................ 22

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2.1.2. Fundraising activities....................................................................... 23
2.1.3. Lending activities ............................................................................. 24
2.2. ENTERPRISE CREDIT PROCESS APPLY AT AGRIBANK BAC
GIANG BRANCH.......................................................................................... 25
2.2.1. Make a loan application .................................................................. 25
2.2.2. Check loan documents and purposes ............................................. 25
2.2.3. Investigate, collect and synthesize information about customers
and production and business plans/investment projects........................ 26
2.2.4. Check and verify information......................................................... 27
2.2.5. Industry analysis .............................................................................. 27
2.2.6. Analysis and appraisal of loan customers...................................... 28
2.2.7. Analysis and appraisal of business plans/investment projects .... 29
2.2.8. Loan security measures ................................................................... 29
2.2.9. Credit scoring and customer rating as Enterprise........................ 31
2.2.10. Make a Loan Appraisal Report .................................................... 31
2.2.11. Disbursement.................................................................................. 31
2.2.12. Debt collection and credit monitoring.......................................... 31
2.2.13. Credit liquidation........................................................................... 32
2.3. LENDING SITUATION AT BAC GIANG BRANCH........................ 32
2.4. PROBLEMS ARRIVING IN THE CREDIT ASSESSMENT
PROCESS AT BAC GIANG BRANCH ...................................................... 32
2.4.1 General comments 2.4.2. Problems arise when checking the
application and the purpose of the loan................................................... 32
2.4.3. How to determine the credit limit (in case the Enterprise borrows
according to the credit limit)..................................................................... 33
2.4.4. The problem of appraisal of collateral........................................... 34
2.4.5. The issue of assessing financial capacity........................................ 34
2.4.6. Business plan appraisal ................................................................... 38
2.5. ASSESSMENT OF THE QUALITY OF THE PROCESS AND
ASSESSMENT OF CORPORATE CREDIT AT BAC GIANG BRANCH
.......................................................................................................................... 40
2.5.1. Achievements.................................................................................... 40
2.5.2. Difficulties and limitations .............................................................. 42

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CHAPTER III: SOLUTIONS TO COMPLETE PROCESS AND
IMPROVE CREDIT ASSESSMENT EFFICIENCY AT AGRIBANK BAC
GIANG BRANCH.............................................................................................. 46
3.1. PROFESSIONAL DEVELOPMENT ORIENTATION OF CREDIT
SERVICES OF AGRIBANK BRANCH OF VIETNAM IN THE NEXT
TIME ............................................................................................................... 46
3.2. SOME SOLUTIONS, RECOMMENDATIONS TO COMPLETE
PROCESS AND HIGH EFFICIENCY OF CREDIT ASSESSMENT AT
BAC GIANG BRANCH ................................................................................ 47
3.2.1. Solutions from Agribank Vietnam in general and Bac Giang
Branch in particular .................................................................................. 47
3.2.2. Recommendations to the State Bank and competent authorities 52
3.2.2.1. For State Bank of Vietnam........................................................... 52
3.2.2.2. With specialized agencies ............................................................. 53
3.2.3. Recommendations for enterprises .................................................. 54
CONCLUSION................................................................................................... 55
REFERENCES................................................................................................... 56
Table 2.1: Organization chart of Agribank Bac Giang Branch
Table 2.2: List of capital mobilization in 2021
Table 2.3: List of loans in 2021
Table 2.4: Viaco's business plan
Table 2.5: The balance sheet of Viaco company
Table 2.6: Financial ratios of Viaco

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INTRODUCTION
1. Rationale
In the operating characteristics of Vietnamese commercial banks, credit is still
the most important operation. In particular, credit for businesses accounts for a
very large proportion of the total credit balance of banks in general. The bank's
credit granting has had a positive effect on the production and business activities
of enterprises and promoted economic growth, and also brought a significant
source of profit for the Bank itself.
In fact, the credit appraisal work at Vietnamese banks currently still has many
shortcomings: many business projects are inefficient, banks cannot recover
debts... Despite their role As the mainstay of one of the largest state-owned
commercial banks in Vietnam, Agribank also belongs to this situation.
With the desire to understand the policies and methods of lending to businesses
of Agribank Bac Giang branch, and at the same time compare the competitive
strategy of Agribank with other banks, the thesis has delved into the appraisal
process. Credit assessment for businesses to draw conclusions about the
effectiveness of credit extension of Agribank Bac Giang branch today with the
topic: Improving the quality of lending to enterprise customers at Agribank Bac
Giang branch.
2. Objectives
Research topic on lending process and credit appraisal at Agribank Bac Giang
branch, assess advantages and disadvantages, determine causes and impacts on
credit appraisal quality, then propose solutions and recommendations to further
improve the efficiency of credit activities at the branch in the coming time.
3. Methodology
3.1. Collecting data and information
The thesis uses data sources from credit reports and documents of Agribank Bac
Giang Branch. In addition, the thesis also uses information on Agribank's
journals, magazines, electronic newspapers and pages related to credit activities
of some other commercial banks as specific evidence.
3.2. Approaches
The thesis uses methods to compare the fluctuations of a series of numbers over
the years; analyze data and evaluate data with relative and absolute numbers;
compare data and information from different subjects and direct interview
methods.

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4. Scope
About space: The study is based on data reported on the operation and credit
appraisal at Bac Giang branch.
About time: The thesis will focus on analyzing the credit appraisal process of
Agribank Bac Giang Branch in the period of 2020 - 2021 and the future
development trend of credit operations.
5. Research structure
In addition to the introduction and conclusion, the thesis is divided into three
chapters:
CHAPTER I: OVERVIEW OF THE CORPORATE CREDIT ASSESSMENT
AND LOANS PROCESS
CHAPTER II: THE SITUATION OF IMPLEMENTATION OF THE
BUSINESS CREDIT ASSESSMENT AND LOAN PROCESS AT AGRIBANK
BAC GIANG BRANCH
CHAPTER III: SOLUTIONS TO COMPLETE PROCESS AND IMPROVE
CREDIT ASSESSMENT EFFICIENCY AT AGRIBANK BAC GIANG
BRANCH

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CHAPTER I: OVERVIEW OF THE CORPORATE
CREDIT ASSESSMENT AND LOANS PROCESS
1.1. OVERVIEW OF CREDIT PROCESS FOR BUSINESS
1.1.1. The concept of credit process
The credit process (also known as the lending process) is a sequence of specific
steps from the time of receiving the loan demand of the enterprise customer until
the bank makes a loan decision, disbursement, and liquidation of credit contracts.
The credit process is drafted with the aim of helping the lending process to take
place synchronously to limit, prevent risks and improve credit quality,
contributing to better serving the loan needs of customers. This process also
identifies the person performing the work and the responsibilities of the officers
involved in the lending process.
Most commercial banks design themselves a specific credit process, including
many different stages with specific results of each stage. The design of the credit
process depends on many factors such as organizational and management
capabilities, customer characteristics, etc., but they all have main tasks that
cannot be ignored. In the credit process, the results of the previous stage are
always a premise for the implementation of the next stages, affecting the work
quality of the following stages. However, in practice, depending on each specific
case, credit officers can flexibly apply the stages of the credit process to facilitate
loans for businesses.
1.1.2. Basic credit process
1.1.2.1. Instructions for businesses to make a credit profile (for first-time loan
businesses)
This is the first step, the basic stage of the credit process. Making a credit profile
is done right after the credit officer contacts the business that needs a loan.
Making a credit profile is an important step because it is the stage of collecting
information as the basis for performing the following steps, especially the step of
credit analysis and lending decision.
Depending on the relationship between the enterprise and the bank, the type of
credit required and the size of the credit, the credit officer will guide the
enterprise to make a dossier with different required information. Normally, a set
of credit application documents will need the following information from the
business:
- Information on the legal capacity and behavioral capacity of enterprises.
- Information about the ability to use and return capital of enterprises
- Information about credit guarantee
To collect the above basic information, the Bank usually requires businesses to
prepare and submit to the Bank the following documents:

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- Application letter for loan
- Documents proving the legal status of the enterprise, such as establishment
license, decision on appointment of director, charter of operation…
- Business plan and debt repayment plan, or Investment project
- Financial statements of the most recent period
- Documents related to mortgage, pledge, or loan guarantee
- Other relevant documents if necessary
1.1.2.2. Credit appraisal and analysis
After collecting the necessary information about the business, the credit officers
begin to move to the second stage - loan application appraisal and credit analysis.
This is the most important and also the most difficult stage, requiring
professional qualifications and analytical capacity of credit officers.
Credit analysis is the analysis of the current and potential capabilities of the
enterprise in terms of loan use, repayment ability and capital recovery. The
objective of credit analysis is to detect circumstances that may lead to risks for
the Bank, thereby finding measures to prevent and limit those risks. In addition,
credit analysis also involves verifying the truthfulness of the information
provided by the customer as an enterprise, thereby assessing the attitude and
reputation of the business to make a loan decision.
The credit analysis process includes the assessment of the legal entity status, the
purpose of the loan, the assessment of the current financial capacity of the
enterprise, the appraisal of the loan plan…
a/ Appraisal of the legal status and behavioral capacity of the Enterprise
This is a necessary condition of a business when it wants to get a loan from a
bank. The appraisal of the legal capacity and behavior of the business will be the
basis for appraising the next steps in the credit analysis process. This assessment
includes the following:
The first is to determine the operation headquarters of the enterprise and the
business registration agency, where the enterprise carries out business
registration procedures for legal establishment.
The second is determining the validity period of the establishment decision,
business license, and practice license.
The third is the study of the minutes of capital contribution of the founders. Have
the founders contributed enough? Form of contribution in cash or property? If the
property is required by law to register ownership, has ownership transferred or
not?
b/ Appraisal of loan purposes

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After reviewing the documents related to the legal issues of the enterprise, the
credit analysis work moves to the second step, which is the appraisal of the loan
purpose. For enterprises, the purpose of borrowing capital is usually to borrow to
expand production and business, expand operating locations, borrow to
implement investment projects, etc. Regardless of the purpose of borrowing
capital, enterprises must ensure the following requirements: following
conditions:
Firstly, whether the purpose of the loan is legal, in accordance with the business
registration or not.
Second, does the enterprise have items that the state prohibits from importing in
each period?
c/ Appraisal of the financial capacity of the enterprise
Supporting documents for this stage include the most recent financial statements
of enterprises, debt monitoring sheet, bank reconciliation table and other
financial documents. From this source, credit officers will study the following
groups of ratios
- Liquidity ratio group: Short-term ratio and Quick ratio
Current ratio = Current assets / Current liabilities
Quick ratio = (Current assets- inventory)/Current liabilities
The above coefficient should be larger than 1. If it is too close to 1, the payment
risk can also occur when inventory decreases in price, some receivables cannot
be recovered. And this payment coefficient is less than 1 financial expression of
enterprises in difficulty (maybe due to business losses or debt loss...)
- Activity ratio group: Inventory turnover; Average collection period; Repayment
period…
Inventory Turnover= (Inventory/Cost of Goods Sold) x 365 (days)
Average collection period = (Receivables/Revenue) x 365 (days)
Payment period = (Accounts payable/Cost in cash) x 365 (days)
Comment: The longer the turnaround time, the more difficult it will be for
businesses to collect debts, repay debts and consume their goods.
- Debt ratio group: Debt to Total Assets, Debt to Equity (Equity) and Past due to
Total outstanding debt.
Debt to Total Assets = Debt/Total Assets
Debt to Equity Ratio = Debt/Equity
Ratio of overdue debt to total outstanding balance = Overdue debt/Total
outstanding balance

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Comment: The higher this group of ratios, the more it affects the liquidity of the
enterprise, and at the same time reduces the reputation of that enterprise with the
Bank and investors.
- Income ratio group: Gross profit ratio, Asset turnover ratio; ROA and ROE
Gross profit ratio = Gross profit/net sales
Asset turnover = Revenue/Total assets
ROE = Net Profit/Equity
ROA = Net profit/Total assets
Financial leverage = Total assets/equity
Comment: This group of ratios measures the efficiency of capital of business
owners. They show how much profit the business has generated for each dollar of
capital spent. In addition, credit officers can base on other groups of criteria to
assess the financial capacity of customers.
Example: Self-financing ratio = Equity/Total capital. If this ratio is from 40% to
60%, the ability to self-finance is high, and enterprises are more active in
business.
d/ Appraisal of the loan plan
The job of the credit officers at this stage is to assess the feasibility of the
business plan or investment project of the enterprise. Even though an enterprise
has good financial capacity, if it does not come up with an effective business plan
or investment project, the possibility of credit risk will be high, and the enterprise
will face many difficulties in the process of finding capital loans to carry out their
business proposals. In the loan application, businesses often enclose a detailed
business plan and debt repayment plan, or an investment project that they intend
to implement in the future. Credit officers will base themselves on the criteria
and indicators there and conduct analysis and assessment of the feasibility and
effectiveness of the business plan or the investment project.
Some notable criteria when evaluating a business plan or an investment project
* Analysis of cash flow or fluctuations of assets, capital sources
Net cash flow is an estimate of income and expenditure of a business plan or
investment project, including the actual receipts (cash inflows) and actual
expenditures (cash outflows) of that business project during a certain period
(usually 1 year).
In the Business Plan, businesses always have to estimate and calculate the
expected Revenue and Net Profit to give an overview of the benefits that the
business project will gain in the future. However, to evaluate an effective
business plan or an investment project, people often use net cash flow, not profit.
Because, profit does not accurately reflect the time of collection and payment of
business plan or investment project, so it does not accurately reflect the total

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benefit that the project brings in the future. There are two ways to determine the
net cash flow of a business plan or investment project:
Direct method:
Operating cash flow = Cash inflow for project activities - Cash outflow for
project activities.
- Indirect method:
Operating cash flow = Profit after tax + Depreciation + (-) ∆ Working capital
requirement
In which, ∆ Working capital requirement = ∆ Cash + ∆ Receivables + ∆
Inventory - ∆ Payables
When working capital requirement increases, the project needs an additional
expenditure, conversely, when this capital demand decreases, the project will
have a return.
For enterprises that do not have cash flow statements, instead of calculating cash
flows, credit officers need to analyze fluctuations in assets and capital sources of
that enterprise for the purpose of determining whether the allocation of capital
and reasonable use of capital.
* Appraisal of investment targets
- NPV: This is the basic indicator used to evaluate the effectiveness of a business
plan or an investment project because it represents the added value that the
business or investment project brings to the enterprise. Net present value (NPV)
is the sum of present value of net cash flows at the appropriate discount rate.
Formula for calculating net present value
Where NCF1 is the net cash flow in year t, r is the discount rate, n is the life of
the business plan/investment project. With the same discount rate, the business
plan or investment project with higher NPV will be more effective because it
creates value for the business.
- If NPV > 0, it means that the business plan or investment project has a higher
return than the initial cost, so it should continue to invest.
- If NPV = 0 it means that a business plan or investment project has a return
equal to the cost, can be invested.
- If NPV < 0, it means that a business plan or investment project has a lower
return than the initial cost, so it should not be invested.

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A business plan or an investment project is only worth investing when its NPV is
greater than or equal to zero because only then will the income from that business
plan or investment project be enough to cover costs and bring additional profits
to the enterprise intending to invest.
Advantage: This method considers the time value of money and considers the
entire cash flow of the project. In addition, NPV also determines the total
present-converted profit from the project implementation. If funding has been
determined, NPV is the most reliable indicator.
Disadvantages: The calculation and determination of this indicator depends on
the discount rate, so it requires deciding the appropriate discount rate to apply
this indicator. In addition, NPV does not refer to the size of the project, does not
represent the payback period and the rate of return on capital.
- Internal rate of return IRR: is the discount rate for NPV to be 0.The formula for
determining IRR is derived from the following equation:
A business plan or an investment project is acceptable when the IRR is greater
than or equal to the expected rate of return.
For other calculations, choose 2 discount rates r1 such that NPV1> 0 and r2 such
that NPV2 < 0.
At r2 makes NPV2 negative, so the absolute value is taken into the calculation
formula. The IRR to find (corresponding to NPV = 0) will be between r1 and r2 .
Advantages: This is a method that takes into account the price of money and
takes into account the entire cash flow. Furthermore, the calculation is also very
simple as only a single discount rate is required.
Disadvantages: This method only uses a single discount rate to evaluate all
investment plans. If the IRR does not take into account variations in the discount
rate, this method will not be suitable for long-term projects. In addition, the
calculation of IRR is not effective for projects with a mix of positive and
negative cash flows, which will produce many different IRR results.
- Profitability ratio PI: also known as benefit-cost ratio. The formula is as
follows:

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PV (Net benefits)
PI =
PV (Net investment costs)
If PI is greater than or equal to 1, the project is efficient and vice versa. PI also
has advantages and disadvantages like NPV expenditure. However, NPV is an
absolute measure of the return from a business plan or an investment, while PI is
a relative measure, expressing the amount of profit generated per dollar of
investment.
- Payback period PP
Investment capital
PP =
Annual income
Investment capital = Fixed capital + Working capital requirement
Annual Income = Net Interest + Depreciation + Interest + Recovery of working
capital requirement
Advantages: simple calculation, showing liquidity and risk of business plan or
investment project, if short payback period shows higher liquidity of business
plan or investment project and lower risk.
Disadvantages: does not consider net cash flow after payback period. On the
other hand, this indicator is not concerned with the time value of money.
- Discounted payback period:
To overcome the disadvantage of not considering the time value of cash flows in
the non-discounted payback formula, a discounted payback period is used. The
formula for calculating the discounted payback period is similar to that of
undiscounted, but is based on discounted net cash flows.
DPP = n +
NCFt

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n is the number of years for the project's cumulative cash flow to be less than 0,
but the cumulative cash flow will be greater than 0 when it comes to year n + 1.
e/ Appraisal of loan collateral
In order to ensure the financial viability of enterprises and at the same time avoid
the Bank from bearing the risk that the enterprises cannot repay their debts, it is
very necessary to appraise the assets to be mortgaged or pledged.
Each type of property will have different appraisal methods, in which real estate
appraisal is considered the most complicated and difficult. Credit officers will
base themselves on the State's regulations on real estate valuation.
Credit officers, when appraising, will have an appropriate valuation method
depending on the nature of each type of asset.
For assets such as machinery and equipment, means of transport, inventory, and
securities, the normal valuation will be based on the purchase price on the sale
and purchase contract, the import price of the goods; residual value… of those
assets.
g/ Setting up a credit limit (for businesses applying for a credit limit)
Credit Limit means the maximum loan balance maintained for a certain period of
time as agreed by the Bank and the enterprise in the Credit Contract. In fact,
banks now often grant credit cards to customers within 12 months, allowing
businesses to withdraw loans when needed during this period. Each time a loan is
withdrawn, the enterprise and the bank agree on the repayment time for each debt
receipt (referred to as the Debt Acceptance Agreement), the duration of each
Agreement can be determined in the business cycle of the company.
In addition, each enterprise will be granted a different loan limit by the Bank.
The consideration and grant of credit lines does not have a general formula, it
depends on the reputation of the enterprise, the reliability and feasibility of the
business plan, the relationship of that enterprise with the Bank, etc. With this
form of credit, usually businesses that have a credit relationship with the Bank,
have stable business operations, good financial capacity, have complete and
reliable information sources.
There are many ways to determine the credit limit for businesses at banks today,
but the usual calculation is based on the capital difference as follows:
Credit Limit = Working Capital Requirement – Participating Equity (Own capital
+ Other capital)
In there:
Working capital requirement = Working assets - Non-banking short-term debt (1)
- Long-term debt (2)
(1) = Trade payable + Employee payable + Other payable
(2) = Value of fixed assets financed by long-term sources

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1.1.2.3. Credit decision
After completing the credit analysis steps, the credit officers will make a credit
decision. Credit decision is the decision to lend or refuse a loan application of the
customer. This is also an extremely key step in the credit process because it
greatly affects the following stages and affects the reputation and efficiency of
the Bank's credit operations. To make a credit decision, credit officers need to
prepare the following necessary documents: Appraisal report; Report to the
Director; Minutes of identification of collateral; Notarized application form;
Credit contracts... However, this is also the most difficult stage to handle and
often makes the most mistakes.
There are two basic types of mistakes that occur in this stage:
- Agree to lend to a bad customer
- Refuse to lend to a good customer
Both types of mistakes result in substantial losses for the Bank. The first type of
mistake easily leads to damage due to overdue debt, or uncollectible debt, i.e.
financial loss. The second type of mistake can easily lead to reputational damage
and loss of loan opportunities.
In order to limit mistakes, in the credit decision stage, banks often focus on two
issues:
- Collect and process complete and accurate credit information as a basis for
decision making.
- Giving decision-making power to a Credit Council or people with analytical
and judgmental capacity.
a/ Basis for credit decision
To make a credit decision, it must first be based on collecting information and
processing credit records from the pre-transition period. Next, based on other
information or just recently updated and relevant information, such as market
updates, main signals of the bank, regulations on operating signals of the bank.
The State Bank (SBV), the source of the Bank's loan capital, the results of the
appraisal of the loan security forms..., from which the Credit Council will base
on that to determine the loan.
Depending on the size of the loan, large or small, the right to judge credit is
usually given to a credit committee or a qualified and qualified individual in
charge. If it is a Credit Council, this Council will include people with important
powers and responsibilities in the Bank, often adjudicating large-scale loan
applications while the small scale is usually given to the individual in charge.
The level of large and small capital size will normally be regulated by each bank.
After making a credit decision, the result can be loan approval or denial,
depending on the analysis and appraisal results at the previous stage. If the bank

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refuses to lend, the Bank will reply in writing and explain the reason to the
enterprise clearly.
b/ Credit Judgment
Making a credit decision is not easy. Depending on the size of the loan, large or
small, the right to judge credit is usually given to a credit committee or a
qualified and qualified individual in charge. If it is a Credit Council, this Council
will include people with important powers and responsibilities in the Bank, often
adjudicating large-scale loan applications while the power to judge loan
applications has a large scale. Small scale is usually given to the individual in
charge. The level of large and small capital size will normally be regulated by
each bank.
1.1.2.4. Loan disbursement
Disbursement is the next step after the credit contract has been signed.
Disbursement is disbursing loan money to enterprises on the basis of credit terms
committed in the contract. Disbursement is not just about giving loans to
enterprises, but it is also accompanied by monitoring and checking whether that
capital is used for the right purposes as committed or not. The Bank's
disbursement requires documents such as Debt Receipt; Accreditation; Credit
agreement; Business plan…
1.1.2.5. Credit monitoring
Credit monitoring is an important step in order to ensure that loans are used for
the right purposes as committed, control credit risks, detect and promptly resolve
violations that may affect creditworthiness. future debt collection. Some credit
monitoring methods can be applied:
- Monitor business account activities at the Bank
- Analyze the financial statements of the company periodically
- Monitoring businesses through periodic interest payments
- Survey the actual location of production and business activities of enterprises
- Check the forms of loan guarantee
- Monitor business activities through relationships with other customers
- Monitor businesses borrowing capital through other sources of information
1.1.2.6. Credit liquidation
This is the final stage of the credit process. This step includes:
- Collection of both principal and interest
- Review of credit contract
- Liquidation of credit contracts
a/ Debt collection

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The bank collects debts from enterprises in accordance with the terms committed
in the credit contract. Depending on the nature of the loan and the financial
situation of the enterprise, the two parties can agree and choose one of the
following forms of debt collection:
- Earn one-time interest, collect principal at maturity
- Periodically collect interest, collect principal at maturity
- Collect both principal and interest at maturity
- Periodic interest collection, periodical principal collection
If the enterprise is unable to repay the debt by the due date, the Bank may
consider extending the debt or switching to overdue debt so that later appropriate
measures can be taken to ensure debt recovery.
b/ Review of credit contract
The review of a credit contract is essentially a credit analysis in the terms of the
loan being granted with the aim of assessing credit quality, detecting risks for
timely handling.
c/ Liquidation of credit contracts
If the term of the credit contract expires and the enterprise has fulfilled its
obligations to repay both principal and interest, the Bank and that enterprise will
carry out procedures for liquidating the credit contract, disposing of assets and
keeping loan documents. of enterprises into the archives.
If the enterprise is unable to repay the debt by the due date, the Bank may
consider extending the debt or switching to overdue debt so that later appropriate
measures can be taken to ensure debt recovery.
1.1.3. The meaning of the loan process
- Serve as a basis for the division of responsibilities and powers of each relevant
department in credit activities.
- Serve as a basis for setting up loan documents and procedures.
- Specify the relationship between the relevant parts in credit activities.
1.2. CORPORATE CREDIT OVERVIEW AND CORPORATE CREDIT
APPRAISAL
1.2.1. Enterprise credit concept
According to Section 10, Article 20 "Terms and definitions", the Law on Credit
Institutions amending and supplementing (2004), "Credit granting" is an
agreement by a credit institution for a customer to use an amount of money on
the principle of having a certain amount of money. repayment by lending,
discounting, financial leasing, bank guarantee and other operations”. Thus,

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corporate credit is a form of reflecting the borrowing and debt repayment
relationship between banks on the one hand and enterprises on the other.
Corporate credit is the transfer of the right to use capital from the Bank to
customers who are enterprises within a certain period with a certain cost. This is
a very flexible form of credit because the loan object is currency; Banks can lend
to all economic sectors, satisfying the needs of customers from small loans to
cover operating costs of enterprises to larger loans to expand production and
business, social economic development.
Initially, for enterprises, in order to expand production and business, they needed
to have a large inventory of goods, but lack working capital. To survive and
develop, businesses need the support of bank credit.
Credit capital from the Bank is one of the important sources of capital to
supplement working capital and fixed capital for business owners, and is also an
important source of funding for business projects of enterprises.
To support businesses in the production and business process, banks have
different lending strategies to encourage businesses to borrow more, and also to
increase profits through strategies such as reducing interest rates; expanding loan
objects; Other offers…
1.2.2. Principles of Corporate Credit
1.2.2.1. Loan capital of the Enterprise must be fully repaid both principal and
interest according to the agreed term
This principle is set forth to ensure that commercial banks exist and operate
normally and maintain and strengthen the reputation of enterprises. Because the
source of loan capital of commercial banks is mainly mobilized from outside, it is
a part of the owners' assets that the banks temporarily manage and use. If the
credits are not repaid by enterprises on time, it will also affect the repayment
ability and reputation of the Bank.
1.2.2.2. Loans must be used for the right purposes
This is a necessary principle for businesses to apply for loans, because the credits
provided to businesses must meet specific goals in the process of production and
business activities, thereby promoting businesses to complete their business plan.
Credits are used for the right purposes and effectively is not only the principle
but also the motto of the credit activities of the Banks.
1.2.2.3. Loan capital must be secured by the equivalent value of goods and
materials
Each loan from the Bank must be attached to collateral, that in the event that the
loan is not repaid by the enterprise on time, or is not fully repaid, the assets are
taken as collateral. guarantee will be used to reimburse the Bank instead.
Collateral can be made by:
- Mortgage or pledge of property

19
- Guaranteed by mortgaged or pledged assets
- Secured by assets formed from loan capital
- Loans unsecured by property
- Credit guarantee by socio-political organizations for newly established
enterprises, which are facing many difficulties.
1.2.3. Requests for applying for corporate credit
Enterprises must meet the following specific conditions:
- Having civil legal capacity: According to Article 86 of the 2005 Civil Code,
civil legal capacity arises from the time it is established or permitted by a
competent state agency; if a legal entity must register its operation, its legal
capacity shall be counted from the time of registration.
- Legitimate loan purpose
- Having a feasible and effective investment project, production, business and
service plan
- Implement regulations on loan guarantee according to the regulations of the
Government, the State Bank and the guidance of Agribank Vietnam.
1.2.4. Types of businesses that are granted credit
a/ Vietnamese enterprises doing business in Vietnam: State-owned companies;
Limited liability company; Joint Stock Company; Enterprises with foreign
investment capital; Cooperative; Private enterprise; Partnerships and other
organizations that fully satisfy the conditions specified in Article 84 of the Civil
Code.
b/ Foreign legal entities doing business in Vietnam.
c/ Vietnamese enterprises borrow capital to implement overseas production,
business and service projects and plans.
1.2.5. Business Credit Classification
1.2.5.1. According to the loan method
According to the lending regulations for customers who are Enterprises in the
system of Agribank Vietnam promulgated together with Decision No. 72/QD-
HĐQT-TD dated March 31, 2002 of the Board of Directors, credit products and
services Applications of Agribank in general and Bac Giang Branch in particular
are providing include:
- Lending each time
- Lending according to Credit Limit
- Installment loan
- Lending through the issuance and use of credit cards

20
- Syndicated lending (co-financing)
1.2.5.2. According to the loan term
- Short-term liability
- Medium-term loans
- Long-term loan
1.2.5.3. In the form of loan security
- Loans with collateral
- Unsecured loans
1.2.5.4. According to the loan purpose
- Real estate loan
- Loans according to investment projects
- Industrial and commercial lending
- Agricultural loan
1.2.5.5. By credit origin
- Direct loan
- Indirect loan
1.2.6. Business credit appraisal method
Credit appraisal is the use of analytical tools and techniques to check and assess
the reliability and risk of a business or investment project that a customer is an
enterprise to offer in order to serve the purpose of making the decision. credit
decisions. Besides, credit appraisal tries to analyze and understand the real
feasibility and economic efficiency of the project from the perspective of the
Bank. When developing a business plan, businesses also only provide a draft
with expected data and results for the purpose of obtaining loans. Therefore,
credit officers, by sticking to the credit process, will conduct credit appraisal
according to the sequence of steps mentioned above, from the appraisal of legal
documents, financial situation, method business plans to loan guarantees on a
prudent and objective basis.
1.2.7. Purpose of credit appraisal
Credit appraisal should achieve the following objectives:
- Assess the reliability of the business plan or investment project that the
enterprise has prepared and submitted to the Bank when carrying out loan
procedures.
- Analyze and evaluate the level of risk of business or investment projects when
deciding to lend.

21
- Reduce the probability of two kinds of mistakes when deciding to lend: (1) lend
to an unviable project and (2) refuse to lend a good project.
1.2.8. Meaning of business credit appraisal
1.2.8.1. Credit appraisal contributes to improving quality and minimizing credit
risks
In the credit relationship, the basic issue that banks are always interested in to
make a lending decision is efficiency and capital safety for the Bank. In fact,
there are many business plans or investment projects that require a large amount
of capital and a long implementation time, so the decision to lend or not will have
a great influence on the development and existence of the Bank. However, not
every business proposal of an enterprise can meets the capital needs of the Bank.
Banks only agree to lend loans with feasible, highly effective, and profitable
business plans.
When making loan documents, enterprises, due to their desire to get loans from
the Bank, may have inflated and led to an over-optimistic estimate of the
economic efficiency of the business plan or investment project. Therefore, credit
appraisal will help credit officers see the true nature of the Business Plan, thereby
making the right decisions.
Credit appraisal has an even more key role, which is the function of "risk
prevention" through activities of identifying and evaluating customers as
enterprises. The bank learns about the customer to accurately determine the
customer's willingness to repay and the ability to repay, thereby greatly
influencing the decision to lend or not to lend.
1.2.8.2. Credit appraisal creates favorable conditions for businesses to access
loans, and at the same time increases profits for the Bank
Currently, the problem of lack of investment capital is common in enterprises,
especially small and medium enterprises, or newly established enterprises, with
limited production and business development conditions, and small market share.
Therefore, the credit appraisal will help businesses realize that their investment
projects are reasonable and bring about high efficiency as expected, and at the
same time have the opportunity to receive loans. financial support from the Bank
if the business plan is feasible.
Besides, the granting of credit to enterprises also brings the Bank a small profit,
which is the interest on the loaned capital.
1.2.8.3. Credit appraisal helps banks to accurately assess the necessity and
reasonableness of business plans or investment projects of enterprises in all
aspects.
A business project launched by an enterprise requires not only economic
efficiency but also other social efficiency such as creating jobs for employees,
increasing competitiveness. and especially the issue of environmental protection.

22
Therefore, the credit appraisal will help banks to consider and evaluate the nature
of each business proposal in terms of objectives, scale, and efficiency. Not only
that, through the assessment of the object to be invested, banks will have the
conditions to view the production and business activities of enterprises
comprehensively and objectively in the past, present and trends. development of
enterprises in the future, thereby having an appropriate solution, avoiding
possible credit risks and ensuring the provision of capital for enterprises with
good business plans.
CHAPTER II: THE SITUATION OF
IMPLEMENTATION OF THE BUSINESS CREDIT
ASSESSMENT AND LOAN PROCESS AT
AGRIBANK BAC GIANG BRANCH
2.1. GENERAL ABOUT AGRIBANK BAC GIANG BRANCH
2.1.1. Organizational structure and management apparatus
Table 2.1: Organization chart of Agribank Bac Giang Branch
Board of
Directors
Computer
Department Administration
Department
Department
of Capital
and General
Planning
Credit
Department
Individual
customers
Enterprise
customers
Internal
Audit and
Inspection
Department
Accounting
Department

23
2.1.2. Fundraising activities
Agribank Bac Giang branch has always determined that capital is an important
and vital stage for the Bank's development. Aware of that, Agribank Bac Giang
branch attaches great importance to capital mobilization. With the motto
"borrowing to lend" over the years, the Bank has had many different forms of
capital mobilization, improved operations, innovated transaction styles, expanded
business networks, and improved paperwork. , equipped with modern machinery,
implemented the policy of mobilizing reasonable interest rates to attract capital.
Therefore, the amount of capital mobilized by Agribank Bac Giang branch in the
past 2 years is shown in the following table:
Table 2.2: List of capital mobilization in 2021
TT Targets
2021 Compared with 2020
Amount % Amount %
Total mobilized
capital
17.324 17.324 (+9,8%)
I Currency 17.324 17.324 (+9,8%)
1 VND 17.235 1.545 (+9,85%)
2 USD 3.591 314 (+9,85%)
II Term
1 Corroborate 1684 9.7% 506
2 With term 8006 46.2% 1000
III Customers
1 Residential 16065 92.7% 1.192
2 Deposits of credit
institutions
2,8 0.02% 0.3
3 Deposits of economic
organizations
1256 7.3% 358

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2.1.3. Lending activities
In 2021, Agribank Bac Giang Branch will continue to direct branches to actively
approach, capture and promptly respond to customers' borrowing needs; closely
monitor the local economic situation to boost lending to priority areas, lending
for living needs. Deploying credit support packages, solutions to remove
difficulties for customers affected by the Covid-19 epidemic. Interested in asset
restructuring There are risks. Actively looking for solutions to urge bad debt
recovery, handling risks, good management of debts that are at risk of bad debt
transfer, etc., so the credit quality in 2021 will be stable and of good quality.
-Concentrating on lending to the agricultural and rural sector according to the
Government's Decree No. 55/2015/ND-CP; lending program credit preferential
service.
Through emulation movements, credit growth has been promoted, lending
efficiency has been increased, the risk-weighted asset ratio is lower than the
general level of the whole system, and 100% of the annual credit growth plan has
been completed in 2021.
Table 2.3: List of loans in 2021
TT Targets
2021 Compared with 2020
Amount Amount %
Total loans
I Term 11.766 952 (+8,8%)
1 Short term loans 6475 55% 805
2 Mid and long term
loans
5290 45% 147
II Economic
composition
1 Loans to businesses
and cooperatives
2.852 24.2%
2 Personal household
loan
8913 75,8%

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2.2. ENTERPRISE CREDIT PROCESS APPLY AT AGRIBANK BAC
GIANG BRANCH
2.2.1. Make a loan application
This is the first step of a business when it wants to access a loan from a bank.
Details of the loan application are presented in Appendix 1 at the end of this
thesis.
2.2.2. Check loan documents and purposes
2.2.2.1. Check loan documents
Before checking the customer's loan application, the credit officers will
determine if the customer who comes to apply for a loan meets all the conditions
for a loan or not, from which they will begin to consider and make a decision.
a/ Conditions for loans for customers who are enterprises of Vietnam Bank for
Agriculture
Basically, Agribank's loan conditions for enterprises are similar to the general
loan conditions described in Chapter I. However, each bank has its own
characteristics and characteristics, and the conditions for borrowing capital from
it. There are also differences.
Firstly, the condition "Having civil legal capacity, civil act capacity and civil
liability according to the provisions of law" applicable to each type of enterprise
is specified as follows:
- Legal entity: recognized as a legal entity according to Articles 94 and 96 of the
Civil Law and other provisions of Vietnamese law. For dependent accounting
member enterprises, there must be a letter of authorization to borrow capital from
the legal entity directly managing it.
- Private enterprises: Owners of private enterprises must have full civil legal
capacity, civil act capacity and operate under the Enterprise Law.
- Partnership: General partners of a partnership must have civil legal capacity and
civil act capacity and operate in accordance with the Enterprise Law.
In addition to the conditions "Having a lawful purpose of using loan capital";
“Having a feasible and effective business plan or investment project”; “Using
loan security measures”, Agribank Vietnam also has the additional condition
“Having financial ability to guarantee debt repayment within the committed
period”, specifically:
- Having their own capital to participate in production, business and service
projects and plans.
- Effective and profitable business. In case the enterprise suffers a loss, it must
have a feasible plan to overcome the loss to ensure debt repayment within the
committed period.

26
After enterprises have satisfied the above conditions, credit officers check the
authenticity of loan documents through the agency issuing them or through other
information channels.
b/ Check legal documents
Credit officers check the legitimacy and validity of documents in the list of legal
documents in Appendix 1 at the end of the thesis. In addition, the following
issues should be checked:
- A document specifying the rights and responsibilities of the parties in the joint
venture contract for the joint venture enterprise.
- The enterprise's operating charter, especially provisions on powers and
responsibilities (consider who has the right to decide, to what extent).
- Decide to appoint the Director (General Director), chief accountant or financial
manager of the enterprise and the legal representative of that enterprise.
- The remaining duration of operation of the enterprise, etc.
c/ Check loan documents and loan security documents
The credit officers check the authenticity of each type of document presented in
Appendix 1 "Basic loan documents" and Appendix 4 "List of loan security
documents".
For the financial statements for the next three years and business plan/investment
project, loan repayment capacity, sources of payment, inspection and analysis,
see details in section 7 “Analysis and appraisal of business plans/projects.”
investment project" below.
In addition, check the suitability of the business lines recorded in the business
registration with the enterprise's current business lines and with the proposed
investment plan; business lines allowed to operate, the development trend of the
industry in the future.
2.2.2.2. Check loan purpose
This inspection includes: (1) Checking whether the loan purpose of the proposed
investment plan is consistent with the business registration; (2) Check the
legitimacy of the loan purpose (compare the loan request with the list of banned
goods and commercial services according to the Government's regulations).
For loans in foreign currencies, it is necessary to check whether the loan purpose
is in accordance with current foreign exchange management regulations.
2.2.3. Investigate, collect and synthesize information about customers and
production and business plans/investment projects
2.2.3.1. About loan customers
Credit officers must go to the customer's place of production and business to
learn more information about (1) the management board of the borrower; (2)

27
Condition of existing factories, machinery, equipment, techniques, processes and
technologies of the customer and (3) Assessment of loan collateral (if any).
The purpose of going directly to the production and business places of enterprises
is to verify the information that enterprises have provided to the Bank, so that the
credit decision making will be more accurate and objective. There are enterprises
that are dishonest, deliberately exaggerate about their financial situation and
business results in order to increase the bank's loan limit.
2.2.3.2. About the business plan/investment project
Credit officers can collect information about business plan/investment projects
through many different channels, including: prices, supply and demand situation
in the market for business plan/investment products; find out through suppliers of
equipment, input materials, and consumers of similar products of business
plan/investment project to assess the input and output market situation; learn
from the mass media (newspapers, radio, computer networks...); from state
management agencies, enterprise management... In addition, information sources
can come from reports, research, seminars on each industry or from business plan
/ investment projects of the same type.
2.2.4. Check and verify information
The process of checking and verifying customer information is done through the
following sources:
- Previous loan records of the business
- Through the CIC Credit Center of the State Bank of Vietnam
- Business partners/partners, including suppliers of raw materials, equipment and
customers who consume the company's products
- Agencies that directly manage borrowers (local state management agencies)
- Banks from which the customer currently borrows / previously borrowed
capital
- The mass media and legal agencies (police, court, procuracy ...)
Verifying information is very necessary, in order to ensure the reliability and
truthfulness of the amount of information collected from the customer, helping to
make the correct and accurate credit decision.
2.2.5. Industry analysis
This is a step in the credit analysis phase. Industry analysis will help credit
officers answer the question "Can the industry they are pursuing can develop in
the future?", that is, to recognize potentials, development orientations and
potential risks. hidden aspects of each field, finding competitors, alternative
products and services; even experienced credit officers will be able to advise
customers on the development of that industry.

28
Some issues need attention
- Main products and services (Is there a large supply and demand for products
and services in the market?)
- Business environment (How does the output market, input market, legal
environment, socio-economic environment affect supply - demand?)
- Competitive ability (Prospects of customers, position in the market,
development trends, strengths - weaknesses compared to competitors...).
2.2.6. Analysis and appraisal of loan customers
2.2.6.1. Analysis of legal status and capacity, executive ability, production and
business capacity, organizational model, and labor arrangement in the
Enterprise.
This step includes: (1) General understanding of the customer; (2) Investigation
and assessment of legal status and capacity; (3) Organizational model, labor
arrangement of enterprises and (4) Learn and evaluate the management ability of
the Board of Directors.
2.2.6.2. Financial analysis and assessment
a/ Check the accuracy of financial statements
It is important to check the accuracy of a borrower's financial statements before
starting to analyze them. Financial statements, including those that have been
audited, are often not only intentionally positive, but can also be unintentionally
misleading.
The inspection includes reviewing data sources, data prepared by enterprises,
applied accounting regime, accuracy of accounting data and is done through
Appendix 2 "Guidelines for checking reports". finance".
b/ Analysis and assessment of operational situation and financial capacity
- Production and sales situation: Credit officers will follow the instructions in the
Appendix "Instructions on analysis and evaluation of operations" in Agribank's
Credit Handbook [1].
- Analysis of the company's financials: The credit process in general mentioned
in Chapter I, Section 1.1.2.2c on "Appraisal of the financial position" has clearly
stated the typical financial criteria that need to be considered. and evaluation. For
Agribank in general and Bac Giang Branch in particular, these indicators are also
applied.
2.2.6.3. Analysis of the relationship with the Bank
a/ Reviewing the credit relationship
For Agribank Bac Giang Branch and other credit institutions, aspects to consider
include: Short, medium and long-term outstanding loans (specify overdue debts);

29
Borrowing purposes of the loans; Loan turnover, debt collection; Guarantee
balance/letter of credit; Creditworthiness.
In addition, customers must satisfy the requirement "no bad debt or overdue debt
for more than 6 months at Agribank" in order to get a new or additional loan at
Agribank Vietnam.
b/ Consider the deposit relationship
At Agribank Vietnam and other credit institutions, it is necessary to pay attention
to the following factors: (1) Average deposit balance and (2) Deposit turnover,
ratio to revenue.
2.2.6.4. Corporate Credit Rating
For customers who are enterprises, the classification is based on 5 criteria which
are: Profit; Sponsorship rate; Ability to pay short-term debt; NPL ratio at
Agribank Vietnam and Compliance with current legal regulations. Based on the
results of the above criteria, we have 3 levels of customer rating: A, B and C [4].
2.2.7. Analysis and appraisal of business plans/investment projects
From the enterprise's business plan/investment project, the credit officers began
to analyze aspects including: investment objectives; inputs and outputs of
business projects; loan period; capital demand from the Bank; expected effect;
risk assessment… After the credit officers calculate and analyze these factors,
they will conclude on the feasibility and effectiveness of the enterprise's business
project. The entire content and results of this analysis step are shown on the
appraisal report of Agribank.
2.2.8. Loan security measures
Loan security is the application of measures by the Bank to prevent risks, create
an economic and legal basis for the recovery of lent debts.
Loan secured by assets is a loan from the Bank whereby the debt repayment
obligation of the borrower is committed to be secured by the pledged or
mortgaged property of the borrower or the guarantee of the intermediary.
Currently, the Branch is applying security measures including:
- Mortgage, mortgage of property
- Guaranteed by mortgaged or pledged assets
- Secured by assets formed from loan capital
- Loans unsecured by property
- Guarantee by credit of socio-political organizations for poor households
Details of Agribank's loan security documents are presented in Appendix 4 "List
of loan security documents".

30
2.2.8.1. Conditions for properties to be accepted as loan security
The property that the customer borrows and the guarantor uses to pledge,
mortgage or guarantee a loan at Agribank Vietnam must fully meet the following
conditions [3]:
- The property must be owned or used or managed by the borrower or the
guarantor in accordance with the following provisions:
For the value of land use rights, it must belong to the use right of the borrower,
the guarantor and be mortgaged according to the provisions of the law on land.
Property of a State-owned enterprise must be the property assigned by the State
to such enterprise to manage and use and be used to secure loans in accordance
with law.
As for other assets, they must be owned by the borrower or the guarantor. In case
the property is required by law to register ownership, the borrower and the
guarantor must have a certificate of property ownership.
- Assets allowed to be traded
- At the time of pledge, mortgage, guarantee, the property is not in dispute
- For property that is required by law to buy insurance, the borrower must buy
property insurance within the loan guarantee period. At the same time, the
mortgagee must notify the insurance organization that the insured property is
being mortgaged.
2.2.8.2. How to determine the value of the property to secure the loan?
Depending on the bank, there are different ways to determine the value of
collateral. With Agribank Bac Giang Branch, there are three ways to determine it
as follows:
- Self-valuation: Credit officers will self-evaluate the customer's special assets
based on the creditworthiness of that customer.
- According to market price: Credit officers themselves investigate market prices
and value assets for customers.
- According to the original price plus reasonable costs (the original price stated in
the notarized purchase and sale contract plus a number of other expenses).
In fact, credit officers often still apply the second calculation method, which is
more complicated and difficult, but safer than the other two methods.
2.2.8.3. Maximum loan amount compared to the value of the property to secure
the loan
For mortgaged and mortgaged properties in general, the maximum loan amount
is 75% of the value of the fixed asset. Particularly for the case of mortgage of
securities and other valuable papers, the maximum loan amount shall comply
with the regulations of the General Director of Agribank Vietnam from time to

31
time. For the collateral for a loan which is a set of export documents: the
maximum loan amount is 100% of the value of the perfect set of documents
minus the loan interest payable during the loan term.
2.2.9. Credit scoring and customer rating as Enterprise
Credit officers will base on the criteria in the "Credit Scoring and Customer
Rating System" of Agribank and in accordance with Regulation No.
1406/NHNo-TD dated May 23, 2007 on the criteria for classifying customers in
the Agribank system. Vietnam. Credit scoring results and customer ratings are
summarized in the Loan Appraisal Report in Section 2.2.10 below.
2.2.10. Make a Loan Appraisal Report
Based on the appraisal results according to the above contents, the credit officer
must prepare a loan appraisal report. This is a written document that must clearly
state the results of the process of appraising and evaluating the customer's
investment plan for a loan as well as suggestions for the customer's proposal.
Depending on each specific business plan or investment project, the appraiser
flexibly selects the main and necessary contents that are directly related to the
financial performance and debt repayment ability of the customer to include in
the Appraisal Report.
2.2.11. Disbursement
After analyzing all aspects of the loan customer and giving positive results, the
credit officer makes a decision to accept the loan and takes the next step to
determine the loan amount and disburse the loan to the customer.
The determination of the loan level depends on the necessity and reasonableness
of the Customer as well as the capital capacity of the Branch. If it is a loan under
the Credit Limit, the loan amount is based on the planned capital balance; If it is
a one-time loan method, the loan amount will be based on reality. The maximum
loan limit depends on the Bank's own capital, the customer's capital and the value
of the collaterals.
2.2.12. Debt collection and credit monitoring
After the loan term expires, the Bank begins to collect debts from customers.
Collection will be based on:
- Cash flow cycle: applicable to reputable businesses with the Bank.
- When the Customer has any source of money, the Bank will offer to repay the
loan to the Bank: applicable to customers who do not have a good reputation with
the Bank or are customers who have a relationship with the Bank for the first
time.
Depending on each customer, Bac Giang Branch will apply appropriate debt
collection methods.

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2.2.13. Credit liquidation
This is the final step in the credit process of Agribank. Credit liquidation includes
collection of due debts and credit contract review.
There are two cases of liquidation:
a/ Default credit liquidation: is the termination of the credit contract when the
debt has been fully repaid.
b/ Compulsory credit liquidation: Agribank will rely on legal bases to find
sources of compensation in order to handle debts due to customers not
voluntarily fulfilling their debt repayment obligations to the Bank.
Debt settlement can be the sale of collaterals or provisioning for risks.
2.3. LENDING SITUATION AT BAC GIANG BRANCH
2.4. PROBLEMS ARRIVING IN THE CREDIT ASSESSMENT PROCESS
AT BAC GIANG BRANCH
2.4.1 General comments
2.4.2. Problems arise when checking the application and the purpose of the
loan
Credit officers will contact businesses first through the loan application. The
appraisal of the legal status and operational capacity of enterprises is very
important, creating a premise for deciding whether these enterprises meet the
necessary conditions to receive loans from the Bank.
The examination of the legal status of the enterprise also includes the
identification of the head office, related branches, operating licenses, etc. of the
enterprise. For Agribank, the identification of the head office of the enterprise is
very important because it helps the Credit Officers to determine the lending area
in accordance with the regulations of Agribank Vietnam (Do not lend out of the
territory).
Another problem that the branch's credit officers often encounter is the invalidity
of documents and papers in the loan application. It is not excluded that
enterprises, because they want to get a loan from the Bank, intentionally forge or
falsify documents in order to evade the law, create trust from the Bank, or
because of lack of knowledge, they cannot collect the valid and complete
documents.
The second is the examination of the loan purpose. The main purpose of
businesses coming to borrow money at Bac Giang branch is to increase capital,
pay for goods or repay due debts. However, not all enterprises comply with their
original purpose. Therefore, credit officers must have a way to strictly control the
purpose of borrowing capital of enterprises by closely monitoring the activities of
enterprises, and at the same time comparing them with current laws, to ensure
that enterprises do business legally in accordance with the provisions of the
Government. At the same time, in order to ensure the accuracy of loan

33
documents, the branch's credit officers must go to the customer's place of
production and business to find out more information about the condition of the
factory, machinery and equipment and production and business activities of
enterprises. The branch sent a credit officer to survey the business. In the case of
Viaco Company, in addition to going to the head office, the credit officers also
went to survey the distribution stores, warehouses, and production facilities of
Viaco in Bac Giang province to determine the reality of the company.
2.4.3. How to determine the credit limit (in case the Enterprise borrows
according to the credit limit)
Collateral: Value of land use rights and assets attached to the land of a third party
and the company's assets.
* Details of the company's collateral are expected in the table below:
a. Property being mortgaged:
In there:
*Properties from (1) to (4) as security for short-term loans.
- Value of collateral: 24,763,100,000 VND
- Scope of guarantee: 18,256,250,000 VND
- Rate of loans secured by assets: 73%
- Rate of loans unsecured by assets: 27%
*Assets in item (5) as security for medium-term loans (loans are 100% secured
by assets).
- Value of collateral: 15,276,811,000 VND;
- Scope of guarantee: 11,450,000,000 VND.
b. Additional expected assets (in the form of mortgage)
*After adding collateral, the value of collateral for short-term loan is
32,363,073,000 VND. The scope of guarantee is: 22,856,233,000 VND.
- Rate of loans secured by collateral: 76.19%
- rate of loans unsecured by collateral : 23.81%
-The total current credit level of the Company at Agribank Bac Giang branch is
VND 32,585,000,000, of which:
+ Medium-term loan balance for factory repair: VND 7,585,000,000
+ Level limit: 25,000,000,000 VND
-Total proposed credit extension: 37,585,000,000 VND; in there:
+Approved medium-term loan: 7,585,000,000 VND
+ Proposed credit limit: VND 30,000,000,000.

34
2.4.4. The problem of appraisal of collateral
With its functions and duties, Agribank Bac Giang Branch has the autonomy in
deciding on loans as well as choosing the appropriate form of loan security.
However, in reality, most of the Bank's lending decisions take into account
collateral due to asymmetric information: the branch cannot collect all necessary
and accurate information about the enterprise as well as the business plan or
project investment of that enterprise. Therefore, although collateral is not
considered as an important factor as the customer's reputation as well as the
feasibility of the project, it is still included in the lending conditions to help the
Branch minimize credit risks. The appraisal of collateral includes a lot of
conditions and accompanying papers that are binding on businesses to ensure
debt repayment.
Next is the issue of fixed asset valuation. The valuation by whom is responsible
is up to each Bank. For Bac Giang Branch, the valuation of special assets is
carried out by the credit officers of the Enterprise Customer Department.
There are two ways to calculate the value of collaterals as real estate: (1)
according to the State's price bracket or (2) according to the market value.
According to the experience of credit officers, if calculating the value of
collaterals according to the State's Price Framework, it will be more favorable
than the Bank's because it is simple and uniform, but businesses will suffer losses
because the real land price may be much higher than the standard price bracket.
However, if calculating the value of the collaterals according to the actual value,
it will be more favorable for enterprises, but on the contrary, it will cause
difficulties for the bank when compensation occurs (the State will base on the
standard price bracket to calculate the value of the collateral), which means that
the Bank will suffer a loss.
In the example of Viaco company, credit officer has determined the collaterals by
taking the total value of the assets according to the State Price Framework and
the field value and then dividing it by two to get the most average value,
balancing the benefits for both sides.
2.4.5. The issue of assessing financial capacity
Depending on each loan, each customer, the Branch will have different methods
of assessing its financial ability, but in general, it must follow each step in the
credit process as mentioned in Section 2.2.6.2 of the chapter.
Table 2.4: Viaco's business plan
Targets 2021 2020
1. Net sales 21617 30785

35
2. Cost of goods sold 17868 25669
3. Gross profit 3930 5116
4. Profit from financial activities 73 115
5. Financial expenses 1927 2906
6. Enterprise management expenses 1393 1695
7. Net income from business activities 683 630
8. Other income 0 0
9. Other expenses 0 0
10. Other profits 0 0
11. Gross profit before tax 683 630
12. CIT payable 96 88
13. Profit after tax 588 542
(Source: Appraisal report of Bac Giang branch for Viaco company)
Table 2.5: The balance sheet of Viaco company
2021 2020
1 ASSET 48838 47113
2 Short-term assets 31475 27983
3 Money 948 730

36
4 Receivables 13475 18020
5 Other Receivables 1765 3959
6 Inventory 14067 7294
7 Other current assets 2985 1939
8 Long-term assets 17363 19130
9 LIABILITIES 36534 35397
10 Short-term debt 28949 26117
11 Short-term loans 25067 24994
12 Payable 1076 990
13 Short-term deferred revenues 2080 -
14 Taxes and other payables to State 96 132
15 Other short-term payables - -
16 Long-term liabilities 7585 9280
17 Long-term loans 7585 9280
18 Equity 12304 11716
19 Owner’s equity 10000 10000
20 Undistributed profits 2304 1716

37
Table 2.6: Financial ratios of Viaco
2021 2020
I. Financial ability coefficient
Short-term payment ratio 1.07 1.09
Quick payout ratio 0.67 0.53
II. Capital balance ratio 24.87 23.75
III. Profit rate
Return on Equity 4.74 11.33
Profit-to-Revenue Ratio 2.05 3.73
Return on Total Assets 1.15 2.91
Comment:
a/ About asset
- Short-term receivables:
Receivables are mainly from reputable customers and long-term business
relationships with the enterprise, so debt recovery is not difficult; All debts are
paid on time.
-Other receivables: Because the Company purchases and processes many kinds
of agricultural products, the need for an advance to purchase raw materials is
quite large to meet production requirements and supply finished products in a
timely manner.
-Inventory: Due to the impact of the Covid-19 epidemic, some orders were
delayed, the delivery time was prolonged, leading to a decrease in revenue and a
large inventory of the company. However, by signing sales contracts from the
beginning of the year, the company also has a specific plan to consume goods,
avoiding the stagnation of capital in the warehouse, causing inefficiency.
-Fixed assets:

38
The entity makes annual depreciation using the straight-line method.
Depreciation is in accordance with regulations.
b/ Regarding equity:
-Payable to the seller
Accounts payable are all suppliers of raw materials to the company, these are the
traditional customers of the unit. The company also partially utilizes the capital
from the purchase of raw materials which are delayed in payment, and the debt to
pay processing costs to calculate the cash flow in the business.
-Short-term loans: The company maintains a stable loan to promptly meet capital
requirements for production and business, and provide products on time to
customers.
-Mid-term loans:
The company makes medium-term loan payments, diverging projects to repair
and build warehouses, operators and product and service introduction centers at
Agribank Bac Giang branch.
Working capital is greater than zero, indicating a balanced capital structure, the
company's ability to pay short-term liabilities and long-term assets that are firmly
financed by long-term capital.
Assessment of financial ability: -The company's payment activities are
maintained at a stable level, meeting payment requirements.
- The ability to be financially independent is low, and the equity capital accounts
for a low proportion of the business capital structure. The company needs to have
a plan to increase equity to ensure safety in business.
-The group of indicators of operational capacity increased while the indicators of
profitability tended to decrease. The company needs to have a specific business
strategy to promote operational growth, ensure the return of capital, ensure the
life of employees and have accumulation.
2.4.6. Business plan appraisal
Business projects of enterprises presented in loan applications at Bac Giang
Branch are very diverse. Credit officers will depend on the nature and
characteristics of each business plan/investment project to have an appropriate
analysis and appraisal. If it is an investment project, the credit officers will
consider each stage of the project's implementation, analyze the break-even
revenue; source of debt repayment... If an enterprise comes to apply for a loan to
supplement working capital for production or purchase of fixed assets, the
establishment of a business plan is to prove the debt repayment capacity and
financial potential of that enterprise. Thus, credit officers will mainly consider
the feasibility of the plan through the given criteria, repayment time and debt
repayment progress of the enterprise.

39
Assess the legitimacy of the loan purpose:
Loan purpose: Producing and processing agricultural and food products such as:
canned baby cucumbers, canned cherry tomatoes, lychees, carrots, potatoes,
frozen corn... for domestic consumption and export. password.
The purpose of the company's loan is in accordance with Agribank's regulations
Assess the feasibility of the capital use plan
- Basis for appraisal: Plan for using capital for the period 2021-2022.
-By the end of 2021, the company's factory system, machinery and equipment
will be synchronized. The company completed the procurement and installation
of cold storage systems, freezing tunnels and processing and preserving lines of
agricultural products according to modern techniques. Therefore, the company
plans to expand production and business in 2021-2022 and sign many large-value
contracts to consume domestic goods and export to the Korean market.
On the basis of the above analyzed production and business plan, the company's
loan demand is necessary to bring about efficiency for business activities.
-Total working capital requirements (excluding depreciation of fixed assets,
interest on bank loans) = Total expenses expected in 2021 - Total interest
expense and depreciation expense = 55,355,050,000 VND.
Expected average working capital turnover in 2021 is 1.5 turns/year. According
to the financial statements for the financial year ended December 31, 2020, the
average working capital turnover is 1.38 rounds/year. In 2021, production and
business activities will be affected by the outbreak of the Covid-19 epidemic, but
the company also has many measures to maintain and stabilize business
operations. Therefore, working capital turnover in 2021 is expected to be 1.5
rounds/year to be proactive in arranging business capital (equivalent to 8
months/round).
-Total working capital requirements/expected working capital turnover:
36,903,366,667 VND (rounded up: 36,903,366,000 VND).
Capital plan
*Reciprocal capital to implement the business plan includes: current working
capital and capital occupied by suppliers, prepayment by buyers. The counterpart
capital is expected to be VND 6,313 million, accounting for 17.1% of the total
working capital demand per detailed rotation.
-Net working capital as at 30/9/2021 is 2,526 million VND to participate in the
business plan. Estimated prepaid capital from suppliers and buyers is VND 3,787
million calculated on the basis of average payables to sellers and on-going sales
contracts (deferred payment) in 2021, so continue will take advantage of this
capital.

40
-Economic efficiency
+ Total revenue: 69,655,820,000 VND (1)
+ Total cost: 61,001,050,000 VND (2)
Profit before tax = (1) – (2) = 8,654.770,000 VND.
+ Corporate income tax (20%); 1,730,954,000 VND.
+ Profit after tax = 6,923,816,000 VND.
- Debt repayment capacity of the production and business plan: With the above
business results, the company is able to repay the bank debt from business
revenue.
2.5. ASSESSMENT OF THE QUALITY OF THE PROCESS AND
ASSESSMENT OF CORPORATE CREDIT AT BAC GIANG BRANCH
2.5.1. Achievements
2.5.1.1. About the loan process
First of all, the introduction of an internal credit rating system. According to
Decision No. 493/2005/QD-NHNN dated April 22, 2005 guiding the
classification of debts, setting up and using provisions to deal with credit risks in
banking activities of credit institutions. Professionally advised by Ernst & Young
and sponsored by the World Bank, Agribank has successfully designed the credit
software IPCAS (Intra Payment and Customer Accounting System), connecting
nationwide all 2,250 branches and departments online. This is modern and well
designed software that includes a lot of different applications. Since its
establishment, the Branch has applied this software into practice and obtained
encouraging results. Especially, from 11/05/2009, the software has been
upgraded to IPCAS II , once again affirming Agribank's steady progress in
applying current technology.
Secondly, Agribank's lending process has partly improved the quality and safety
of the branch's lending. The unification of forms and appraisal process makes
credit officers more convenient in analyzing and making credit decisions, and at
the same time improving their initiative and creativity in their work. Another
advantage in the lending process at Agribank is that each stage of implementation
is clear and separate from each other, from the appraisal of financial capacity and
feasibility of business projects to the appraisal of collateral assets are performed
sequentially and separately, which is shown through the Appraisal Report and the
Minutes of Valuation of collateral instead of being consolidated into one report
as before.

41
Next, the credit appraisal also has a very clear division of responsibility.
Specifically, with credit applied to businesses below 20 billion VND, it will be
signed by the Deputy Director and above that level will be submitted to the
Branch Director [5]. In addition, loans without special assets will be submitted
directly to the Director for approval. This decentralization will reduce credit risk
and enhance responsibility for members of the Branch.
Finally, the control of the enterprise's special assets is also focused on by the
branch. Each property mortgaged or pledged by the enterprise is registered by the
Branch through the Secured Transaction Department to ensure that the Customer
can only mortgage or pledge assets at Agribank, avoiding the risk that the
property may be taken away to mortgage in many places. If there is a dispute, the
Branch will be the first beneficiary in recovering the loan. In addition, all
documents (originals) related to property ownership such as Certificates of Land
Use Rights, Certificates of House Ownership, Vehicle Registration Certificates,
etc. of the enterprise, are assigned to the Branch for storage during the time the
enterprise borrows the capital and will repay it after the enterprise has fulfilled its
debt repayment responsibilities.
2.5.1.2. About credit appraisal quality
Currently, credit activities at the branch are constantly developing in both size
and quality, in which the credit appraisal for enterprises is still operating
regularly and continuously, as businesses increasingly need to increase capital to
expand production and business. The number of business applications accounted
for 65% of the total loan applications received by the Agribank Bac Giang
branch.
In addition, the proportion of credit balance of enterprises is much larger than
that of individual and household loans (business loans account for 80% of total
outstanding loans). In addition, at present, Bac Giang branch mainly applies
loans secured by assets (real estate, inventory, receivables...) or third-party
guarantee, the rest is another form of borrowing (unsecured loans, unsecured
loans, etc.). In particular, unsecured loans are almost exclusively applied to
personal loans with stable income from salaries, and are limited to businesses
because of their high risk.
For customers who come to borrow money for the first time, credit officers often
guide how to get a loan and the necessary documents for the customer to prepare.
The percentage of customers who come to borrow money for the first time
accounts for 30%, the rest are businesses that have had a long-term credit
relationship with the Agribank Bac Giang branch. This proves that the Agribank
Bac Giang branch is always the first choice of customers whenever they need a
loan, and also affirms its reputation and brand in the banking field. In order to
encourage businesses to borrow more, Agribank has continuously adjusted
lending interest rates flexibly, with many levels suitable for each type and

42
method of lending, and at the same time has preferential policies for customers
with a long history of lending and good credit relationship.
Those are the initial achievements of Agribank Bac Giang branch in nearly 30
years of operation in credit operations. With the current growth momentum, the
Branch will surely achieve more success in the coming time.
2.5.2. Difficulties and limitations
Despite achieving positive results, in order to meet the new requirements, the
branch's credit activities in recent years also encountered many difficulties and
limitations.
2.5.2.1. Restrictions from within Bac Giang Branch
a/ The appraisal of the loan plan is incomplete
Compared with the credit appraisal content of some other banks such as
Vietcombank, Vietinbank, Agribank Bac Giang branch has not yet fully
approached all aspects and factors of assessment of financial capacity. The main
credit and loan plan are the same as the steps in the general credit process. It may
be due to their professional qualifications, sense of compliance or objective
conditions that when participating in the appraisal of financial situation and
business proposals, credit officers only focus on calculating financial ratios to
evaluate assess the solvency of the customer, while other criteria that can assess
the payment situation more effectively, such as cash flow analysis, net present
value NPV, payback period PP, etc., are not mentioned. . This may lead to wrong
lending decisions and increase the risk for the Branch. In addition, the appraisal
report of Bac Giang branch has not clearly stated such contents as forecasting
market demand for products and services of enterprises applying for loans; in-
depth research on production technology of enterprises, advantages and
disadvantages of enterprises through SWOT analysis; find out the compliance of
enterprises with other provisions of the law (such as compliance with Finance
and Accounting regimes, regulations on compulsory insurance types, regulations
on labor safety, environmental protection, etc.) ...). Moreover, credit officers
have not taken into account the risk factors and prevention solutions in most of
the business plans, but only mentioned in a few large investment projects.
b/ Going to survey at production and business establishments of enterprises
having difficulties
According to the credit appraisal process, after reviewing the customer's profile,
each credit officer must personally visit the borrower's production and business
places to collect and learn about the factory, equipment, and qualifications.
production and business management, financial capacity, current status of
collaterals and other information in order to analyze and evaluate customers and
the effectiveness of their loan application plan. This is very difficult for
customers who are far away from the Branch because the credit bureau does not
have enough time and reliable information sources to analyze, capture or easily

43
fall into the pre-arrangement of dishonest customers. At the same time, the cost
of such an appraisal is quite large compared to the expected interest earned if the
loan is accepted, including the cost of gas, transportation, business trip,
accommodation costs for staff. This will be a large number if include the travel
and appraisal of thousands of loans that arise every year at Bac Giang Branch.
c/ Determining the value of collateral is not consistent and accurate
This is one of the most frequently encountered problems by credit officers. In
addition to having to rely on many regulatory law sources such as the Civil Law,
the Notary Law, etc., which complicates the determination of the legal basis of
the collaterals, the credit officers also face difficulties in valuing when the
Framework is required and the State prices differ greatly from market prices,
sometimes emotional pricing is not really accurate, causing damage to the Bank
or to businesses. As for the size of the current Branch, the valuation of special
assets is in charge of the credit officers and not by an independent appraisal
department for valuation.
Just as for the appraisal of documents proving the financial capacity of the
enterprise and the feasibility of the business plan, not all banks have the
conditions to appoint experts to appraise collaterals. This increases the risk that
credit officers deliberately collude and hook up with customers to overstate the
value of collaterals for personal gain.
d/ Limitations in handling assets to secure loan recovery
When bringing documents to apply for a loan, every business tries to ensure its
ability to repay its debt with certainty with collaterals in order to create trust in
the Bank. In case the debtor is unable to repay, the Bank will use the second
source of repayment, which is the assets given as security for the loan. However,
handling this collateral is not simple, on the contrary, it also brings the Bank a lot
of trouble, especially for loans with real estate mortgages as security.
The reality shows that the handling of the mortgaged property is not always
possible, or has been handled but the handover process is too slow, leading to
damage and deterioration. If the Bank wants to sell, the Bank has to repair, invest
more, increase the Bank's operating costs, or these assets are stuck in terms of
procedures and documents, etc. Although the Bank already has processes and
procedures quite strictly and legally in lending with collateral,(all documents
certifying property ownership are held by the Bank), however, the Bank still
loses when a dispute arises in fact because it has to share benefits with other
plaintiffs, and at the same time costs money. a lot of time and expense in
litigation, or in case the debtor absconds or is inactive and does not cooperate in
handling the property. For assets that are movable, sometimes the Bank does not
manage and check the collaterals after lending strictly, leading to the customer
automatically selling or pledging the property elsewhere, causing the bank to not
collect the loan.
e/ Inadequacies in debt classification and provisioning for credit risks

44
According to Decision 493/2005/QD-NHNN issued on 22/4/2005, from April
2008, commercial banks have to classify debts, set up and use provisions to deal
with credit risks according to Article 2 of this Law 6 or Article 7 of this decision.
However, banks are currently only making provision according to Article 6, i.e.
classifying debts based on term, while avoiding making provision according to
Article 7 even though it will give more honest and comprehensive results.
Agribank Bac Giang is also in this situation. Basically, the debt classification
according to Article 7 is a comprehensive assessment of a customer's financial
capacity and debt repayment ability. The debt classification under Article 6 is
only based on the assessment of the repayment capacity of each individual loan.
If follow Article 7, immediately classifying customers and debts will be more
accurate, however, the bad debt ratio will increase by 2-3 times, leading to more
provisioning for risks, lower profits. Therefore, it has been a phenomenon that
while auditing firms and international financial institutions have assessed that the
bad debts of Vietnamese banks are very high, the ratio of debt to total
outstanding loans is determined by the State Bank of Vietnam and announced by
credit institutions themselves are always low. The reason is that the classification
of debts is not reasonable and consistent with international standards, and the
Bank also seeks to extend or reverse debts for businesses. As a result, bad debt
status is not properly represented, leading to credit risk.
2.5.2.2. Difficulties from the outside
a/ The legal mechanism is not strict and consistent
The introduction of the Law on the State Bank of Vietnam and the Law on Credit
Institutions in 1997 has significantly contributed to perfecting the legal
environment for banking activities in general in Vietnam. However, legal
documents supporting the development of banking products and services,
especially credit operations, are still lacking and incomplete. For example, the
Law on Credit Institutions is still in the draft and revision stage because there are
still many problems and conflicting opinions on a number of things in the law.
Regulations on Secured Transactions still have many obstacles and fundamental
differences, making it very difficult for banks to implement, and businesses also
have difficulties in accessing loans. The fact that the sources of law are
conflicting and overlapping is due to the inconsistent and strict implementation
and management of laws by the State and related ministries, causing banks and
businesses to be confused when implementing them.
b/ Lack of credit information
In fact, due to not properly assessing the importance of information, commercial
banks in general and Agribank Bac Giang branch in particular do not have
measures to access, process, exploit and store information effectively for the
entire credit appraisal process. In addition, the Branch has many employees with
COVID 19, so there is a shortage of human resources specialized in collecting
and processing credit information, information sources have not been fully

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