1.3 Improving consumer lending activities
1.3.3 Factors affecting the consumer lending activities in commercial banks
a. Political – legal factors
Law is an effective management tool of the state. All individuals and organizations in each country are governed by the legal system prescribed by that country with their activities, commercial banks are no exception. Moreover, commercial banks are also subject to strict supervision by the State Bank in ensuring the capital harmonization of the credit system before developing consumer lending activities. Therefore, the stricter the regulations of the competent authorities, the more it will promote business activities of credit institutions and also contribute to helping credit institutions improve service quality.
First of all, the provisions of the law will directly affect the business direction of credit institutions, including the orientation of consumer lending. If in a country where the law does not allow credit institutions to conduct consumer lending, credit institutions will not be allowed to do this. If the law has provisions on consumer lending but it is still too sketchy, there is not enough corridor for credit institutions to operate, it cannot help credit institutions to do good business.
In addition, legal documents of other departments related to the business activities of the bank such as the Law on Foreign Investment, the Law on Taxation, the Regulation on minimizing administrative procedures, etc., were promulgated. and revision closer to international practices, the progress of mankind has also contributed significantly to facilitate the smooth operation of credit institutions as well as consumer lending activities.
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The political situation has a strong impact on the economy, so it also affects consumer lending. As we all know, for a country with frequent riots, overthrows, coups, political instability, protests, etc., the economy cannot develop. Therefore, in these countries, most of the activities of credit institutions are also impaired, not just consumer lending. And vice versa, in a country with a stable political system, without terrorism, riots or subversion, etc., the activities of credit institutions, including consumer lending activities, will develop.
b. Economic factors
This is an important factor with the consumer lending activities. The economic indicators such as national income GDP, growth rate, inflation rate, consumer price index, unemployment rate... honestly reflect the actual status of a country’s economy. If a country has stable economic growth and development, people’s living standards also tend to develop, consumption demand in society increases sharply. Therefore, consumer lending activities will be developed when the economy has high growth rate, per capita income increases, unemployment rate decreases...
c. Social – cultural factors
The factors of socio-cultural environment including social habits, consumption habits, people’s intellectual level, people’s tastes, security and order, social safety... can influence strongly on consumer loans. If the community has a habit of enjoyment, always wants to satisfy its needs quickly, and constantly wants to improve and enhance the current life, consumer lending will have the opportunity to develop. In contrast, with a community in which individuals mainly do not like to shop, do not have the habit of consuming excessively what they earn at the present time, their general tendency is to save money rather than going to credit institutions to borrow money for their spending. As a result, consumer lending would be extremely difficult to operate in such an environment.
d. Credit policies
This is a decisive factor to the existence and expansion of consumer lending of that bank. Credit policy includes Factors limiting the amount of loans connected to customers; the term of the credit; lending interest rates; fee levels;
resolution of bad debts. The above factors will have a decisive influence on credit
lending activities. A good credit policy will bring success to the bank in consumer lending and vice versa.
e. Customers
Customer’s financial ability: This is one of the criteria that every credit institution is interested in when lending to customers. Credit institutions not only pay attention to the current financial ability but also pay special attention to the customer’s future income ability. For customers with better and more stable financial situation, credit institutions are more willing to lend. For consumer lending activities, this criterion is even more important and can be said to be the most important in deciding to grant credit to customers. As a matter of fact, most consumer loans often have commitments to repay the customer’s debt with regular future income. So, for those with higher incomes, paying off debt will have the least impact on their financial situation. Thus, the credit that the credit institutions have granted will be much safer.
Customer ethics: This factor affects the customer’s debt repayment behavior. If the customer has good morals and has the will to repay the debt, the goodwill to repay the debt will be realized. Otherwise, it will be very difficult for credit institutions to collect the principal and interests.
1.3.3.2 Internal factors a. Financial capacity
The financial capacity of the enterprises is reflected in the volume of owner’s equity, the proportion of owner’s equity in total capital, in the liquidity of assets, in the short-term solvency and in quick solvency of the enterprise. The business object of a bank is money, so the capital size and financial position of a bank play an important role. With a large capital scale, the bank not only gives itself the initiative in all activities, but also gives itself the ability to stand firm against competitors.
b. Human resources
This is a factor that affects not only consumer lending in particular, but also most other businesses. If credit institutions have credit officers with high professional ethics and a spirit of love for work, credit activities will partly limit risks and create great growth potential. In addition, direct contact and communication with customers and credit officers takes place quite often and
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continuously. Therefore, the role of the credit officer is very important. Credit institutes need not only a team of qualified, qualified and ethical staff, but also a large number of them.
c. The internal inspection and controlling
Without considering potential risks and uncertainties, expanding the scope of credit activities and boosting consumer lending will quickly result in the failure and bankruptcy of every commercial bank. Inspection and controlling are two activities intended to assist banks in avoiding the aforementioned hazards.
This activity is done not only for the benefit of the clients, such as checking before, during, and after lending, but also for the benefit of the banks themselves, such as ensuring that the loan process is accurate.