UEH UNIVERSITY

UEH COLLEGE OF BUSINESS

SCHOOL OF BANKING

END OF COURSE ESSAY

SUBJECT: COMMERCIAL BANKING

QUESTION 1:
Information of Mary’s current account is as follow:
Date Transaction Amount (USD)
Balance at the beginning of the 11.450
month
06/03/2020 Receive monthly salary 2.900
14/03/2020 Pay monthly electric and water bills 911
14/03/2020 Pay for food and drink 1.342
14/03/2020 Cash withdraw 760
28/03/2020 Fund transfer 1.222
11/04/2020 Receive monthly salary 2.976
11/04/2020 Pay monthly electric and water bills 859
26/04/2020 Receive fund transfer 3.450

Suppose that the interest rate for current account is 1%/annum, days in year is 365,
and the bank pays monthly interest on 28th each month, please calculate interest
amount paying to Mary’s current account in March and April 2020.

Answer:
Day Account balance (Di) Days balance is held (Ni) Di x N i

28/02/2020 11.450 7 80.150

06/03/2020 14.350 8 114.800

14/03/2020 13.439 0 0

14/03/2020 12.097 0 0

14/03/2020 11.337 13 147.381

27/03/2020 11.337 1 11.337

TOTAL 353.668

Interest on customer's 3/2020 payment deposit: 330768 * 1% / 365 = 9,69 (USD)

The bank entered this interest amount into the customer's account on March 28, 2020.
The opening balance on the client's account is 11337 + 9,69 = 11.346,7

Day Account balance (Di) Days balance is held (Ni) Di x N i

28/03/2020 11.346,7 0 0,00

28/03/2020 10.124,7 14 141.745,7

11/04/2020 13.100,7 0 0,00

11/04/2020 12.241,7 15 183.625,3

26/04/2020 15691,7 1 15691,7

27/04/2020 15691,7 1 15691,7

TOTAL 356.754,4

Interest on customer's April 2020 payment deposit 356.754,4 * 1% / 365 = 9,77

(USD)

The bank entered this interest amount into the customer's account on April 28, 2020.

QUESTION 2:
A corporate customer has been granted a term loan, information related to that loan
is as follow:
- Amount: 600.000.000 VND
- Loan term: 48 months
- Type of loan: Amortization loan (The principals paid monthly are equal,
interest is calculated based on the most recent ending balance of the loan)
- Interest rate: 10,2%/annum, days in year: 365 days
Suppose that on 05th April 2020, the bank has completely transferred 600.000.000
VND to the client’s account and that the corporation has to make monthly payments
instalments. Please calculate the repayment schedule for the corporation.

Answer:
 Days
Beginning
Period Date has principal Interest Monthly payment Ending balance
Balance
balance
Drawdown 05/04/2020            
600.000.00 12.500. 5.030.1
1 05/05/2020 30 17.530.137 587.500.000
0 000 37
587.500.00 12.500. 5.089.5
2 05/06/2020 31 17.589.521 575.000.000
0 000 21
575.000.00 12.500. 4.820.5
3 05/07/2020 30 17.320.548 562.500.000
0 000 48
562.500.00 12.500. 4.872.9
4 05/08/2020 31 17.372.945 550.000.000
0 000 45
550.000.00 12.500. 4.764.6
5 05/09/2020 31 17.264.658 537.500.000
0 000 58
537.500.00 12.500. 4.506.1
6 05/10/2020 30 17.006.164 525.000.000
0 000 64
525.000.00 12.500. 4.548.0
7 05/11/2020 31 17.048.082 512.500.000
0 000 82
512.500.00 12.500. 4.296.5
8 05/12/2020 30 16.796.575 500.000.000
0 000 75
500.000.00 12.500. 4.331.5
9 05/01/2021 31 16.831.507 487.500.000
0 000 07
487.500.00 12.500. 4.223.2
10 05/02/2021 31 16.723.219 475.000.000
0 000 19
475.000.00 12.500. 3.716.7
11 05/03/2021 28 16.216.712 462.500.000
0 000 12
462.500.00 12.500. 4.006.6
12 05/04/2021 31 16.506.644 450.000.000
0 000 44
450.000.00 12.500. 3.772.6
13 05/05/2021 30 16.272.603 437.500.000
0 000 03
437.500.00 12.500. 3.790.0
14 05/06/2021 31 16.290.068 425.000.000
0 000 68
425.000.00 12.500. 3.563.0
15 05/07/2021 30 16.063.014 412.500.000
0 000 14
412.500.00 12.500. 3.573.4
16 05/08/2021 31 16.073.493 400.000.000
0 000 93
400.000.00 12.500. 3.465.2
17 05/09/2021 31 15.965.205 387.500.000
0 000 05
387.500.00 12.500. 3.248.6
18 05/10/2021 30 15.748.630 375.000.000
0 000 30
375.000.00 12.500. 3.248.6
19 05/11/2021 31 15.748.630 362.500.000
0 000 30
362.500.00 12.500. 3.039.0
20 05/12/2021 30 15.539.041 350.000.000
0 000 41
350.000.00 12.500. 3.032.0
21 05/01/2022 31 15.532.055 337.500.000
0 000 55
337.500.00 12.500. 2.923.7
22 05/02/2022 31 15.423.767 325.000.000
0 000 67
325.000.00 12.500. 2.543.0
23 05/03/2022 28 15.043.014 312.500.000
0 000 14
312.500.00 12.500. 2.707.1
24 05/04/2022 31 15.207.192 300.000.000
0 000 92
300.000.00 12.500. 2.515.0
25 05/05/2022 30 15.015.068 287.500.000
0 000 68
287.500.00 12.500. 2.490.6
26 05/06/2022 31 14.990.616 275.000.000
0 000 16
 275.000.00 12.500. 2.305.4
27 05/07/2022 30 14.805.479 262.500.000
0 000 79
262.500.00 12.500. 2.274.0
28 05/08/2022 31 14.774.041 250.000.000
0 000 41
250.000.00 12.500. 2.165.7
29 05/09/2022 31 14.665.753 237.500.000
0 000 53
237.500.00 12.500. 1.991.0
30 05/10/2022 30 14.491.096 225.000.000
0 000 96
225.000.00 12.500. 1.949.1
31 05/11/2022 31 14.449.178 212.500.000
0 000 78
212.500.00 12.500. 1.781.5
32 05/12/2022 30 14.281.507 200.000.000
0 000 07
200.000.00 12.500. 1.732.6
33 05/01/2023 31 14.232.603 187.500.000
0 000 03
187.500.00 12.500. 1.624.3
34 05/02/2023 31 14.124.315 175.000.000
0 000 15
175.000.00 12.500. 1.369.3
35 05/03/2023 28 13.869.315 162.500.000
0 000 15
162.500.00 12.500. 1.407.7
36 05/04/2023 31 13.907.740 150.000.000
0 000 40
150.000.00 12.500. 1.257.5
37 05/05/2023 30 13.757.534 137.500.000
0 000 34
137.500.00 12.500. 1.191.1
38 05/06/2023 31 13.691.164 125.000.000
0 000 64
125.000.00 12.500. 1.047.9
39 05/07/2023 30 13.547.945 112.500.000
0 000 45
112.500.00 12.500. 974.5
40 05/08/2023 31 13.474.589 100.000.000
0 000 89
100.000.00 12.500. 866.3
41 05/09/2023 31 13.366.301 87.500.000
0 000 01
87.500.0 12.500. 733.5
42 05/10/2023 30 13.233.562 75.000.000
00 000 62
75.000.0 12.500. 649.7
43 05/11/2023 31 13.149.726 62.500.000
00 000 26
62.500.0 12.500. 523.9
44 05/12/2023 30 13.023.973 50.000.000
00 000 73
50.000.0 12.500. 433.1
45 05/01/2024 31 12.933.151 37.500.000
00 000 51
37.500.0 12.500. 324.8
46 05/02/2024 31 12.824.863 25.000.000
00 000 63
25.000.0 12.500. 202.6
47 05/03/2024 29 12.702.603 12.500.000
00 000 03
12.500.0 12.500. 108.2
48 05/04/2024 31 12.608.288 -
00 000 88
600.000.000 125.033.836 725.033.836

Because of the amortization loan → Principal in each month are equal

Principal = Amount ÷ Loan term = 600,000,000 ÷ 48=12,500,000 (VND)
 The formulas:
1. Interest amount = Beginning balance × r/annum ÷ 365 × Days has balance
2. Monthly payment = Principal + Interest amount
3. Ending balance = Beginning balance - Principal
 The ending balance of the previous month is the beginning balance of the
next month.
  05/05/2020 (1st period):
o Beginning balance = 600,000,000 (VND)
o Interest amount = 600,000,000 ×10.2 % ÷ 365 ×30=5,030,137 (VND)
o Monthly payment = 12,500,000+5,030,137=17,530,137 (VND)
o Ending balance = 600,000,000−12,500,000=587,500,000 (VND)

 05/06/2020 (2nd period):

o Beginning balance = 587,500,000 (VND)
o Interest amount = 587,500,000 ×10.2 % ÷ 365× 31=5,089,521 (VND)
o Monthly payment = 12,500,000+5,089,521=17,589,521(VND)
o Ending balance = 587,500,000−12,500,000=575,000,000 (VND)

… (In the following months, we apply the same formula as above. So the
last two months we get:)
 05/03/2024 (47th period):
o Beginning balance ¿ 25,000,000(VND)
o Interest amount = 25,000,000 ×10.2 % ÷ 365 ×29=202,603 (VND)
o Monthly payment ¿ 12,500,000+202,603=12,702,603 (VND)
o Ending balance = 25,000,000−12,500,000=12,500,000(VND)

 05/04/2024 (48th period):

o Beginning balance = 12,500,000 (VND)
o Interest amount = 12,500,000 ×10.2 % ÷ 365× 31=108,288 (VND)
o Monthly payment =12,500,000+108,288=12,608,288 (VND)
o Ending balance = 12,500,000−12,500 , 000=0
 TOTAL:
+ Principal = 600,000,000 (VND)
+ Interest amount = 125,033,836 (VND)
+ Monthly payment = 725,033,836 (VND)

QUESTION 3:
TKA company has been granted a credit limit of 1.000.000 USD. The interest rate
of the loan is 7,3%/annum, interest will be paid monthly on 26th. History of
TKA’s transactions is as follow:
 Date Transaction Amount (USD)
2/3/2021 Drawdown 240.000
11/3/2021 Drawdown 200.000
18/3/2021 Drawdown 120.000
26/3/2021 Drawdown 160.000
28/3/2021 Pay back the debt 340.000
16/4/2021 Drawdown 470.000
20/4/2021 Drawdown The rest of the credit
limit

Question: Suppose that after 20/4/2021, there is no more transaction, Calculate the
interest amount for TKA in March 2021, April 2021 and May 2021

Answer:
 The formulas:
1. Product = Debit balance × Days has balance

Date Debit balance Days has balance Product

02/03/202
1 240.000 9 2.160.000
11/03/202
1 440.000 7 3.080.000
18/03/202
1 560.000 7 3.920.000
25/03/202
1 560.000 1 560.000
    Total 9.720.000
1.944
    Interest amount (March)

- Interest amount for TKA in March 2021 = 9.720.000 * 7,3% / 365 = 1.944 (USD)
  Beginning debit balance in April 2021 = Debit balance on 25/03/2021 = 560.000
USD. Continuing to apply the method of multiplication, we make a table of
interest payments in April 2021 as follow:

Date Debit balance Days has balance Product

26/03/202
1 720.000 2 1.440.000
28/03/202
1 380.000 19 7.220.000
16/04/202
1 850.000 4 3.400.000
20/04/202
1 1.000.000 5 5.000.000
25/04/202
1 1.000.000 1 1.000.000
    Total 18.060.000
    Interest amount (April) 3.612

- The amount on 20/4/2021 is the rest of the credit limit, meanwhile, the debit
balance on 16/4/2021 is 850.000, so:
The amount on 20/4/2021 = Credit limit – Debit balance16/04/2021 = 1.000.000 –
850.000 = 150.000 (USD)
- Interest amount for TKA in April 2021 = 18.060.000 * 7,3% / 365 = 3.612 (USD)
 Beginning debit balance in May 2021 = Debit balance on 25/04/2021 = 1.000.000
USD. Continuing to apply the method of multiplication, we make a table of
interest payments in April 2021 as follow:

Date Debit balance Days has balance Product

26/04/202
1 1.000.000 29 29.000.000
25/05/202
1 1.000.000 1 1.000.000
    Total 30.000.000
    Interest amount (May) 6.000
 - Interest amount for TKA in April 2021 = 30.000.000 * 7,3% / 365 = 6.000 (USD)

QUESTION 4:
a. What is Debit Card? What is Credit Card? What are the main differences
between Debit and Credit card? Explain your answer in detail.
b. What are the main differences between current account and saving account?
Explain your answer in detail.
c. Company X is a vegetable producer. It plants many types of vegetable and sell
all of its products to a local super market. X is planning to borrow fund from a
bank to finance its working capital needs. X is now considering two options: (1)
applying for a term loan and (2) applying for factoring services. What are the
differences between these two options in term of the bank’s risk? Explain your
answer in detail.
d. A customer decides to use one-year term deposit product at a bank. She has
been offered two products:
(1) One-year fixed-rate term deposit, interest will be paid monthly, deposit rate
is 6%/annum.
(2) One-year floating rate deposit, deposit rate will be adjusted monthly base on
the market rate at the beginning of each month, deposit rate at the opening date
is 6%/annum.
Question: If you were a banker, what will you advise the customer? Explain your
answer in detail.

Answer:
a)
- Debit card: A debit card is a payment card that makes payments by deducting money
directly from a consumer’s checking account, rather than on-loan from a bank or card
issuer. Debit cards offer the convenience of credit cards and many of the same consumer
protections when issued by major payment processors such as Visa or Mastercard.

There are two types of debit cards that do not require the customer to have a checking or
savings account, as well as one standard type.

 Standard debit cards draw on your bank account.

  Electronic benefits transfer (EBT) cards are issued by state and federal
agencies to allow qualifying users to use their benefits to make purchases.
 Prepaid debit cards give people without access to a bank account a way to make
electronic purchases up to the amount that was preloaded onto the card.

Frugal consumers may prefer to use debit cards because there are usually few or no
associated fees unless users spend more than they have in their account and incur an
overdraft fee. (The no-fee advantage does not hold for prepaid debit, which frequently
charge activation and usage fees, among other costs.) By contrast, credit cards generally
charge annual fees, over-limit fees, late payment fees, and a plethora of other penalties,
in addition to monthly interest on the card’s outstanding balance.

- Credit card: A credit card is a card issued by a financial institution, typically a bank,
and it enables the cardholder to borrow funds from that institution. Cardholders agree
to pay the money back with interest, according to the institution’s terms. Credit cards
are issued in the following variety of categories:

 Standard cards simply extend a line of credit to their users for making

purchases, balance transfers, and/or cash advances, and they often have no annual
fee.
 Premium cards offer perks such as concierge services, airport lounge access,
special event access, and more, but they usually have higher annual fees.
 Rewards cards offer cash back, travel points, or other benefits to customers
based on how they spend.
 Balance transfer cards have low introductory interest rates and fees on balance
transfers from another credit card.
 Secured credit cards require an initial cash deposit that is held by the issuer as
collateral.
 Charge cards have no preset spending limit but often don’t allow unpaid
balances to carry over from month to month.

Credit card users can reap cash, discounts, travel points, and many other perks
unavailable to debit cardholders by using rewards cards. Rewards can be applied on a
flat-rate basis or at tiered rates. For example, you might have a card that offers unlimited
two miles per dollar on purchases and another that offers three miles per dollar for travel
spending, two miles per dollar for dining, and one mile per dollar for everything else.
You could then use miles earned to book future travel arrangements.
 - The differences between Debit card and Credit card:

COMPARING DEBIT CARD CREDIT CARD

CATEGORIES
Card printed number Imprinted Embossed
“Borrow” money from the
“Use as long as the
Characteristic bank to use first and pay
amount is available”
later
Linked to bank account Yes No
Monthly fee No Yes
Bring ID, passport to Prove to the bank user’s
Card making procedure the bank for finance and liquidity such as
procedures monthly income
Decided on the amount
you deposit to the bank
Card limit Decided by the bank
account linked to the
card
If you do not repay the bank
in full within the stipulated
Interest No time, you will have to pay a
rather high interest to the
bank
Offer Limited Diverse

b) The main differences between current account and saving account:

Current account Savings account
- Current account is usually an account - A time deposit is an interest-bearing
opened when there would be frequent bank deposit account that has a
transactions involved (also known as specified maturity, such as a Certificate
checking account) of Deposit (CD)
Definition
- Very liquid and can be accessed using - Bank customers must hold funds in
checks, automated teller machines time deposits account for the fixed
(ATM), bank cards, and electronic term to receive the interest rate paid
debits
Customers who have a good plan to
All types of customer who wish to use
invest fund and wish to earn high interest
banks’ payment services
rate
Users - Individuals
- Individuals
- Institutions
- Corporations (usually under a specific
- Corporations
contract)
 - Are not liquid
 Funds must be held until maturity
- Are highly liquid
- Allow unlimited deposits and  Funds cannot be withdraw before
withdrawals maturity unless a penalty is paid
- Mainly used for banks’ payment - High return
Characteristics - Customers cannot use bank’s payment
services
services
 Bank cards
- Fund only can be withdrawn at bank’s
 Fund transfer
branches
 Pay bills,…
- Automatically renew the deposit plus
interest for the same period
High interest rate because bank use funds
Most current accounts don’t provide any in Saving Account to make term loans
Interest rate
interest earning (or low interest). which are more profitable than other
money instruments
Transaction There are no restrictions on the Limited number of transactions are
limit maximum number of transactions. offered.
Balance The minimum balance to be maintained The minimum balance to be maintained
Maintenace is higher than the Savings Account. is low.
Overdrawing The account holders are allowed to There is no overdraft facility available
facility overdraw for the short–term. for Savings Account holders.

c)
COMPARING
CATEGORIE APPLYING FOR A TERM LOAN
S
In order to guarantee that the interest (or
revenue) company X receives is fixed,
Fee the bank only collects loan interest
depending on the number of periods that
company X borrows money.
Trust risk The bank has the opportunity to meet
APPLYING FOR
FACTORING SERVICES
After collecting the debt from
the neighborhood supermarket,
the bank will pay the principal
for the advance loan, interest,
and fees. Any remaining funds
(if any), will then be transferred
to company X. However, there
is still a problem because there
is no way to ensure that the
neighborhood supermarket won't
become insolvent or file for
bankruptcy.
When firm X and the nearby

and work directly with company X to
understand the financial situation as
well as the debt payment ability, thus
limiting the risk of fraud.
According to the issue, business X sells
all of its goods to a nearby super
market, proving its financial
Credit risk
sustainability. As a result, during the
duration of company X's loan, this
presents low credit risk to banks.
supermarket conspire to defraud
the bank, creating fictitious
income, the bank may also be at
risk. In difficult circumstances,
firm X may bill the
neighborhood grocery before
delivering the products or even
create a wholly fictitious invoice
to obtain a bank advance.
Therefore, if the bank does not
adequately manage the
reputation as well as the
condition of business X,
company X may submit fake
papers for receivables emerging
from respectable purchasers in
order to undertake factoring.
Nothing can ensure that the
neighborhood supermarket won't
file for bankruptcy or become
insolvent while the factoring
agreement is still in effect, or
that there won't be any
alternative collateral for the
advance payment. So the bank is
taking a huge risk.

d)

It is clear that product 2 offers more advantages. In contrast to a typical customer using a
bank's service, the deposit rate will be adjusted monthly based on the market rate at the
beginning of each month, making it appear to be more appropriate and profitable for
investors who are financially literate and capable of partially predicting market
movements. Additionally, it has recently been stated that product 2 is unpopular in the
general market, which leads us to conclude that this product's practicality and application
are not very high.

In the meanwhile, the consumer will benefit more from product 1 in terms of financial
planning. Because the interest rate is fixed for the duration of the term loan, she will be
more engaged in her financial planning because she will know exactly how much
principle and interest she will be receiving each month.

In short, because it is safer and more practical for a typical consumer, I will urge my
customer to utilize product 1 in my capacity as a banker.