National Economics University Université Libre de Bruxelles Solvay Brussels School of Economics and Management MBA FINAL PROJECT Title DEVELOPING BANK OVERDRAFT FOR INDIVIDUAL CUSTOMERS IN BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM (BIDV) Master Final Project Developing Bank overdraft for Individual customer in BIDV Acknowledgements I would like to extend special thanks to Dr… for her invaluable guidance during research implementation and her enthusiasm, supportive goodwill as well I have benefited greatly from her crossover between theory and practical experiences I am also grateful to Prof … and Prof … for their valuable lectures and working attitude I also want to express sincere gratitude to all members of management boards and back-office staffs of Vietnam-Belgium Program for their efforts to facilitate MBA students completing the course successfully In particular, Mbis… has always been important supporter for all students in MBA10 Class Master Final Project Developing Bank overdraft for Individual customer in BIDV EXECUTIVE SUMMARY Bank overdraft for individual customers also know as personal overdraft has been commonly used over the world for a long time However, Vietnameses have only known it for 5-7 years Personal overdraft is consumption loan which allows customers to spend more than what they have in their current accounts Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) was a pioneer in providing overdraft service This is a very useful and convenient service; however the number of people awaring and using this service is still minor Therefore, the author carried out the research project to grasp understanding about the situation of personal overdraft in BIDV and the demand of customers in order to find out how to develop this service In this research, the author used theory on personal overdraft from Banking course to explain the nature of the service, its features and factors affecting the development of the service In the next part, the overview of personal overdraft in Vietnam and the situation of personal overdraft in BIDV were described in detail Through the analysis, readers will draw out the problems BIDV facing in developing this service To solve those problems, the author has done the survey on demand on personal overdraft and depth interviews with BIDV’s employees These primary data will give insight of what causes the problems and what customers want in this service Based on that, the author suggested recommendations to improve the service policy, promote the service and fix BIDV’s weaknesses in order to develop personal overdraft service Master Final Project Developing Bank overdraft for Individual customer in BIDV TABLE OF CONTENT Master Final Project Developing Bank overdraft for Individual customer in BIDV LIST OF TABLES AND FIGURES Master Final Project Developing Bank overdraft for Individual customer in BIDV LIST OF ABBREVIATION BIDV: Commercial Joint Stock Bank for Investment and Development of Vietnam NPL: Non performing loan SBV: State Bank of Vietnam Master Final Project Developing Bank overdraft for Individual customer in BIDV INTRODUCTION Rationale of the research In recent years, with the growth of Vietnam economy, the average income of Vietnameses has increased According to World Bank’s report, GDP per capita of Vietnam was USD 1.130 in year 2009, USD 1.224 in year 2010, USD 1.411 in year 2011 In addition, more and more services have appeared to make life better and help people to enjoy life Those factors lead to the increase in people’s spending As a result, consumption loans have become common as a mean to finance personal expenses, especially for urban residents The fact that many banks focusing too much in wholesale banking and corporate lending has posed as a threat to the bank’s sustainable development Accordingly, many banks choose to make retail banking their major aim in order to diversify customer portfolio and minimize the risks BIDV is no exception to this trend; the bank has set a goal to become the leading retail bank of Vietnam in the next five years The scale of retail credit has increased remarkably, the average growth of outstanding balance in retail credit in the period 2009-2011 is over 37% With the increasing number of people receiving salary through bank accounts, other banking services are more and more popular, such as personal overdraft Personal overdraft service has been commonly used over the world for a long time However, Vietnameses have only known it for 5-7 years Nowadays, many banks provide this service, such as BIDV, Vietcombank, ACB, Techcombank, Sacombank… Yet, the customers using this service are limited, mostly urban citizens with relatively high income BIDV started providing individual bank overdraft from 2008, the outstanding balance increases continuously in recent years The outstanding balance at the end of 2011 was VND 1.190 billion, increased by 82.5% compared to the balance at the end of 2010 But all the same, the customers are mainly bank employees and other individuals receiving salary through bank account at BIDV Master Final Project Developing Bank overdraft for Individual customer in BIDV Personal overdraft service is useful and convenient but the number of people awaring and using this service is minor Therefore, the potential development of this service is quite huge In order to develop personal overdraft in BIDV, the author carries out this research project to complete and perfect the overdraft policy, to recommend solutions to attract more customers, increase the credit outstanding balance and to control the risks Research Problem and Specific research objectives To address successfully the mentioned target, it is necessary to understand the nature of personal overdraft service, the current situation of personal overdraft service in BIDV and the customer’s demand on personal overdraft service In more details, the research should aim at fulfilling following specific research objectives: Firstly, to figure out what is personal overdraft service and its features Secondly, to understand the situation of personal overdraft service in BIDV Thirdly, to identify the demand of customers on personal overdraft service Last, to suggest solutions to develop personal overdraft service Research questions What is personal overdraft service? How is BIDV’s personal over draft? For customers who have already used personal overdraft service, how they response to this service and what changes they want? For potential customers, what they want from this service? What should BIDV to develop personal overdraft service? Research Methodology The research is based on theory of Banking, specifically personal overdraft theory As other research projects, this research uses both Secondary data and Primary data Secondary data was collected from the following documents: annual banking report, banking magazines, annual report and other internal reports of BIDV, information posted on website of other banks, articles relating to personal overdraft on the internet,… Master Final Project Developing Bank overdraft for Individual customer in BIDV Primary data was collected through interview and survey The details will be described in Chapter III Research scope The research analyzes data of period between 2009 and June 2012 to work out solutions as suggestion for BIDV to develop personal overdraft in upcoming years Structure of the Final project The content of this Final project document is organized in four main chapters Chapter I: Theoretical Framework This chapter mentions the theory and concepts which are used as backgrounds for this research Chapter II: Personal overdraft in BIDV This chapter describes the overview of personal overdraft in Vietnam and the current situation of personal overdraft in BIDV Chapter III: Research Findings This chapter uses result from the survey and interview to explain why personal overdraft in BIDV has not developed strongly Chapter IV: Recommendations This chapter recommends some solutions to develop personal overdraft in BIDV Master Final Project Developing Bank overdraft for Individual customer in BIDV Chapter I THEORETICAL FRAMEWORK This chapter summarizes all key principles involving personal overdraft service to give general idea on what the service is Also, in this chapter, we will know which indicators indicate the development of personal overdraft service Last, it points out main factors affecting the development of personal overdraft service I.1 I.1.1 Personal Overdraft service Definition of overdraft Overdraft is an extension of credit from a lending institution when an account reaches zero An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero It means that the individual is allowed to continue withdrawing money even if his account has no funds in it In this situation the account is said to be "overdrawn" Basically the bank allows people to borrow a set amount of money The bank often provides overdraft services to both individual customers, corporate and other banks Yet, in this study, only personal overdraft services provided to individual customers are mentioned and analyzed An overdraft often takes form on the current account It can be drawn, repaid and the redrawn from the current account by the borrower at any time throughout its life Therefore, with the inflow and outflow of money from the current account, the balance used to calculate interest always changes I.1.2 Features of overdraft Limit Bank will set upper limit on overdraft to one’s current account Thus, with bank overdrafts one will be able to withdraw more money than in his current account The total drawn amount does not exceed the limit However the effectively drawn amount can vary from day to day, it ... Developing Bank overdraft for Individual customer in BIDV LIST OF TABLES AND FIGURES Master Final Project Developing Bank overdraft for Individual customer in BIDV LIST OF ABBREVIATION BIDV: Commercial... Joint Stock Bank for Investment and Development of Vietnam NPL: Non performing loan SBV: State Bank of Vietnam Master Final Project Developing Bank overdraft for Individual customer in BIDV INTRODUCTION... Vietcombank 77%1, Vietinbank 80%2, BIDV 95.7%3), 50 branches of foreign bank including wholly foreign-owned banks, joint-venture banks With the increasing number of banks, the competition in banking