Develop car loan at toyota dealers in vietnam a case study of TFSVN (2)

The object,scopeandmethodology of thestudy  Object of the study:  Toyota, Automotive industry and market  The situation of car loan at Toyota dealers in Vietnam..  Toyota Financial

ACKNOWLEDGEMENTS

Thispapercouldnothavebeencompletedwithoutthehelp,encouragementandsupportfroma numberofpeoplewhoalldeservemysincerestgratitudeandappreciation.

Firstofall,IwouldliketoexpressmyspecialthankstoDr.A.Pr.PhạmVănNăng,my thes isinstructor.I’mindebtedtohisinspiration,scholarlysupervisionandintellectualsupportt hroughoutthecourseofwritingthisgraduationpaper.Hiscontinualencouragement,

c a r e f u l r e a d i n g , c r i t i c a l commentsa n d p a t i e n t g u i d a n c e m a d e m y w o r k mo

re enjoyable and easier.

IwouldliketothankallmybelovedteachersatUniversityofEconomicsHoChiMinhCity(U EH),thePost-graduateFacultyfortheirsupportandvaluableknowledgeandexperiences during

my study at UEH.

Specialw o r d s o f t h a n k a l s o g o t o a l l mycolleaguesatToyotaFinancialServicesVie tnam,ToyotaMotorVietnam,ToyotaAuthorisedDealersandotherintervieweesfortheirwillingpar ticipationandideasinthestudy.Igreatlyappreciatetheirgenerositywiththeir time and efforts in helping me Without themthis paper could not have been possible.

Finally,mydeepest grati t udeand appreciationgotomyfamily,myfriendsandmyclass mates.Theirlove,supportandconstantencouragementgavemeagreatdealofstrength and determinationthat help me during the time ofwritingthis paper.

NguyễnHoàngDuy

In order to complete this dissertation, the author spent time on studying,

collecting relevant information, exchanging ideas with experts, working for and accumulating practical facts from the company’s operation and business I hereby declare that the submitted work has been done by me, data and findings given in this thesis is true and correct I agree to any crosscheck about the mentioned informationand the dissertation

TABLEOFCONTENT

INTRODUCTION

CHAPTER 1:OVERVIEWOF CAR LOAN 1

1.1 Consumer loan 1

1.1.1 Consumer loan 1

1.1.2 Personal loan 1

1.2 Car loan 1

1.2.1 Car loan 1

1.2.2 CarloanofBanks 2

1.2.3 Common car loan attributes 2

1.3 CAMPARI Model – The Risk management model ofCarloan 5

1.4 Credit risk 7

1.5 Overduedebt 8

CHAPTER 2: CAR LOAN ATTOYOTA DEALERS & TFSVN 10

2.1 OverviewofVietnam’seconomyinrecent years 10

2.1.1 The economic growth 10

2.1.2 GDP per capita 11

2.1.3 Stabilizing the Macro-economy 11

2.2 OverviewofCreditinstitutionsin Vietnam 14

2.2.1 Overview of the forms of credit institutions 14

2.2.2 Reform of Vietnam’s banking system 15

2.2.2.1 Overview 15

2.2.2.2 Prospects 16

2.2.2.3 Needs for and potentials of consumer finance 17

2.3 Vietnamautomotiveindustry 18

2.3.1 Development of automotive industry 18

2.3.2 Vietnam’s master plan of the automotive industry 19

2.3.3 Finance and supporting policies 21

2.3.4 The automobile markets in East Asian countries and Vietnam 21

2.4 Toyota Motor Vietnam 23

2.4.1 Introduction 23

2.4.2 Toyota dealer network 24

2.5 Automotivemarket&ToyotasalesinVietnam 26

2.5.1 Car model purchase in 2009 26

2.5.2 Toyota sales in the world 28

2.5.3 Toyota sales in Vietnam 30

2.5.3.1 Toyota market share in Vietnam 30

2.5.3.2 Toyota sales from Jan to Jun 2010 33

2.5.4 Toyota customer profile 34

2.6 ToyotaFinancialServicesVietnam(TFSVN) 35

2.6.1 InformationonTFSVN 35

2.6.1.1 Incorporation of TFSVN 35

2.6.1.2 Organizational structure 36

2.6.1.3 Legal status 36

2.6.1.4 Legalframework 37

2.6.1.5 Objectives and Scope of business 38

2.6.1.6 TFSVN’s car loan products 39

2.6.1.7 TFSVN’s SWOTs 41

2.6.1.8 Car loan comparison among Banks and TFSVN 41

2.6.2 Car loan at Toyota dealers 44

2.6.2.1 Growing proportion of car loan in Toyota sales 44

2.6.2.2 Car loan sales 46

2.6.2.3 Car loan to individual 48

2.6.2.4 Individual car loan by Bank types and TFSVN 49

2.6.3 TFSVN’s prudential ratios 53

2.6.3.1 Capital Adequacy Ratio 53

2.6.3.2 Creditlimittocustomers 53

2.6.3.3 Payment ability 54

2.6.3.4 Short-term capital for medium to long term lending 55

2.6.4 Loan classification and Provision 55

CHAPTER 3:RECOMMENDATIONSFOR TFSVN 57

3.1 TFSVN’s Credit riskmanagement 57

3.1.1 TFSVN’s Credit risk management principles 57

3.1.2 TFSVN’s Credit risk management process 57

3.1.3 Credit assessment 58

3.2 Theorientationof development 63

3.2.1 Niche strategy 63

3.2.1.1 Sales performance 63

3.2.1.2 Customer retention 64

3.2.1.3 Dealer support 64

3.2.2 New products launch 65

3.2.2.1 Car loan to fleet customers 65

3.2.2.2 Car loan for used cars 66

3.2.2.3 Agencyforinsurance 67

3.2.3 Implement low cost business model 68

3.2.4 Efforts for sustainable growth 68

3.2.5 Short term and Mid-long term plan 70

CONCLUSION 72

LIST OFREFERENCES 73

LIST OF INTERVIEWEES 75

LISTOFAPPENDICES 76

APPENDIX 1 77

TOYOTA FINANCE GROUP’SEXPERIENCESIN CONSUMER FINANCE

ABBREVIATIONS

CreditInformationCenterCRM :

CreditRiskManagementCPI :

Consumer Price IndexFDI :

Foreign Direct InvestmentFED

StationTFSVN : Toyota Financial Services

CorporationTFC : Toyota Finance Corporation

LISTOFTABLES

Table 2.1: The structure of Vietnam’s economy 10

Table 2.2: List of 17 members of VAMA 19

Table2.3:Forecastsofautomotiveoutputupto2020andExistingandrequiredproductioncapacity up to 2010 20

Table 2.4: Dealers scale 25

Table 2.5: Car model purchase in 2009 26

Table2.6:Toyotaproductionbyregion 29

Table 2.7: Toyota sales by region 29

Table 2.8: Estimation ofautomotive market,Toyota sales and Toyota market share 30

Table 2.9: Market share of VAMA members in 2008 and 2009 31

Table 2.10: Toyota customer profile(Percentage) 34

Table 2.11: An interest rate comparison among Banks and TFSVN 42

Table2.12:AcarloancomparisonamongtypicalCommerciallocalbank(Techco mbank),Foreign bank (HSBC) and the Financial company (TFSVN) 42

Table 2.13: Financed portion and Collateral of car loan 44

Table 2.14: Toyota sales and car loan 45

Table 2.15: Car loan at Toyota dealers 46

Table 2.16: Ratio of customer profile 47

Table 2.17: Car loan to individual 48

Table2.18:IndividualCarloanbybanktypesandTFSVN 49

Table 2.19: Market share of individualcarloanbybanktypeandTFSVN 51

Table 2.20: Loan classification and Provision 55

Table 3.1: Estimated living expense 60

LISTOFFIGURES

Figure 1.1: Car loan process 4

Figure 1.2: Types of credit risks and affect 7

Figure 1.3: Days of overdue andratioof return 9

Figure 2.1: Vietnam’s GDP per capita 11

Figure 2.2: Export-Import Growth Rate (%) 13

Figure2.3:Thesystemofcredit institutionsinVietnam 14

Figure 2.4: Automobile market sizein Asian countries in 2009 22

Figure 2.5: Establishing Solid Foundation 24

Figure2.6:Vietnammarketsegmentmovement in FDI automakers 2007-2009 27

Figure2.7:CircleofVietnamautomotive industry 28

Figure 2.8: Toyota market share during 2000-2009 31

Figure 2.9: Marketshareof VAMA members 32

Figure 2.10: Toyota sales from Jan to Jun 2010 33

Figure 2.11: Customer profile 35

Figure 2.13: TFSVN’s lending process 40

Figure2.14:Individualcarindividualloan by bank type and TFSVN 50

Figure 2.15: Market share of individualcarloanbybanktypeandTFSVN 52

o s e d tremendouseffectsontheworldanddomesticautomotivei n d u s t r y , g l o b a l l y v e h i c l

e s a l e s we re muchlowerthanpreviousyears,andsomebigcarmakersannouncedlossandareatthevergeofbankruptcy.However,rescueplansandeconomicpackagesofmanycountriesandVietnamhavebroughtoptimisticsignsfortheeconomyandpeople’lives.Wehavetherighttobelieveinthatthecrisisordifficultieswouldend soon and people’ lives are better

Withstatisticsofpastyears,financialservicesectorhasbeenimprovingandToyotafinancedcarshasbeenincreasinginVietnambyyears.ToyotaFinancialServicesVietnam(TFSVN)wasestablishedinthecontextofnotonlydifficultiesbutalsoopportunities.TFSVN’sfinancialproductsandservicesaredesignedforToy otaandforVietnammarket Thosea r e i n n o v a t i v e , w

h i c h w e r e d e v e l o p e d f r o m g l o b a l e x p e r i e n c e s o f T o y o t a F i n a n c i a l ServicesCorporation(TFSC),andconsiderVietnam’spracticalelements.TheestablishmentofTFSVNistosupportToyota,increasingits marketshareinVietnam,tobringcarbuyers anotheropportunitytoowntheirdesiredcars.AllisforVietnameseprosperouslivesandthesuccess

of Toyota authorized dealers

Ascreditinstitutions,TFSVNcareprofitandconsideritamotivationforabetterperformancegenerally.Creditisoneofkeybusinessactivities,whichbringmainincomeorprofittothecompany.However,thiskindofactivityisthemostriskywithbadconsequencessu c h asincreasingcosts,lowrevenueorloss,badfinancialcapacityandfinallydamagethecompanyimageandreputation,evenbankruptcy.Creditrisksalwaysaccompanywithcreditactivitiesandcannotbeeliminatedcompletely,butonlypreventedorminimizedbyefficientrisk management policy

AtTFSVN,thesettingupandimplementingcreditriskmanagementpolicyisa necessity,togetherwithpossiblestrategies,inordertoimprovethecompetitiveness.That’swhyI chosethet

3 Research questions & objectives

Theobjectiveofthethesisistounderstandtheissuesof TFSVN andthenwecanfindout strategic solutions to improve competitivenessandcreditriskmanagement

Researchobjectives:

 Studyo n r i s k s a n d r i s k m a n a g e m e n t i n p r o v i d i n g c r e d i t s e r v i c e s t

o T o y o t a c a r buyers

 Possible strategies of credit services and products

 To increase Toyota sales volume and its market share

 To increase the company’s profit and market share

 Whatistheorientationofdevelopment?

4 The object,scopeandmethodology of thestudy

 Object of the study:

 Toyota, Automotive industry and market

 The situation of car loan at Toyota dealers in Vietnam

 Toyota Financial Services Vietnam

 Scopeofthestudy:activitiesofToyota,ToyotadealersandTFSVNintheperiodfrom

2005 to 2009

 Methodology of the study:statistics–analysis–summarization.

Theprimarydatawascollectedandgenerated bytheauthor,theresearchreliedonthedatafromTMV,TFSVN,Toyotaauthorizeddealers,VAMA,themasterplanofVietnamautomotiveindustryandcompanies.Moreover,thesecondarydatawasfrompoliciesanddecisions

of government, relevant ministries, newspaper, former researches, etc.Theauthoralsoexchangedideaswithexpertsinfinanceandautomotiveindustryaboutcarmarket,car loan, credit riskmanagement and the market trend

5 Significance of the study

Toyotai s t h e f i r s t c a r m a k e r i n V i e t n a m whichl a u n c h e d f i n a n c e d c a r s e r v i c

e s o f i t s own.TFSVNisthe33rdfinancialcompanyofTFSCintheworld.ThepioneerpositiongivesToyotaandTFSVNnotonlyopportunitiestodevelopbutalsodifficultiesandchallenges.Thesucc ess ofTFSVNisthemotivationwhichlocalandforeignbanksinVietnamcompetewithandothercarmakersshallplantoestablishtheirfinancialcompanyoftheirown.Inthecomingtime,inadditiontoindividuall o a n , t h e c o m p a n y e x p a n d s t o c o r p o r a t e l o a n T h o s e experiences and successwill openaway to the future ahead

6 Structure of the study

Introduction of the study

Introductionisabouttheresearch,includingbackground,theproblemstobesolved,researchrationale, introducing its scope, methodology,and the significance ofthestudy

Chapter1:Overviewofcarloan

Thechapterisareviewofsometheoriesanddefinitionswhichareappliedandreferredforanalysisthroughoutthepaper:consumerloan,carloan,theriskmanagementmodelofcarloan,creditrisk,overduedebt.EspeciallythecarloanCAMPARImodelshallbefiguredoutasanefficientmanagementwaytomanageriskandsupportabettersalesperformanceofthefinancial company

Chapter2:CarloanatToyotadealers&TFSVN

Theo v e r v i e w o f V i e t n a m e c o n o m y , s o m e r e l e v a n t i s s u e s o f t h e e c o n o m

y ; i n t r o d u c i n g a general picture of background for the company’s business,

in particular the banking sector andneeds for potentials of consumer finance

Theanalysisinthechapter:Vietnamautomotiveindustryandmarket,Toyota,thesituationofcarloan at Toyota dealers and TFSVN’s establishment and its sales

highlightthesituationandthebackgroundwhereTFSVNwasestablishedandcameintooperation.ThepurposeofanalysisistodefineproblemsandopportunitiesTFSVNhaveandwhattodotointhefuture.Thischapterconcentratedonsalesperformance,acomparisonamongTFSVNandotherbanks.Thiswouldbringthereadera clearp i c t u r e o f t h e c a r l o a n m a r k e t a t T o y o t a dealers,andsothatwecanfindoutsolutionstosuccessforTFSVNinthenextchapter

Chapter3:RecommendationsforTFSVN

Inthischapter,weworkoutthecreditriskmanagementandtheorientationofdevelopmentforTFSVN.Andthenaconclusiononallwhatwehavediscussedandapossibilityforany furth

er research on thesis topic

1.1.2 Personal loan

Moneyloanedtoindividuals(usuallyonnon-securedbasis)forpersonal,familyorhouseholdpurposes;asopposedtobusinessorcommerciallending.It’salsocalledconsumercredit or consumer lending

Apersonalloanisanunsecuredloan,meaningtheborrowerdoesnotputupanycollateralorsecuritytoguaranteetherepaymentoftheloan.Forthisreason,personalloanstendtocarryh i g h i n t e r e s

t r a t e s I f a b o r r o w e r o w n s a h o m e , a l o w e r i n t e r e s t r a t e a l t e r n a t i v e i s a homeequityloan.However,thisoptionrequiresthattheborrowerputuphisorherhomeorother realestate property as collateral

Al o a n , w h e t h e r a p e r s o n a l l o a n o r a n o t h e r typeofloan,istypicallyusedtofinancea large, one-

timepurchaseorexpense.Theborrowerisgivenallthemoneyatonceandagreestopaybacka certainamountpermonthuntilthedebtisrepaid.Themonthlypaymentincludes both principal (theamount you borrowed) and interest

Personalloanstendtocarryhigherinterestratesthanloanssecuredbycollateralsuchasahome.Therelativelyhighinterestratecompensatesforthefactthatyouaren’tguaranteeingrepayment of the personal loan with some kind of asset

1.2 Car loan

1.2.1 Car loan

Top u r c h a s e a n a u t o m o b i l e t h a t w i l l b e d r i v e n p r e d o m i n a n t l y f o r p e r s o n a l

o r b u s i n e s s Financedamountwillincludevehiclepriceandinsuranceifallowedbyregulations.T

h e finance vehicle isasecured property

1.2.2 Car loan of Banks

Thelocalandforeignbankshaveactivelyexpandedtheircreditactivities,amongthatespeciallycarloaninbothindividualandcorporate.Thisisoneofthemainbankingactivitiest h a t bringasignifican

tprofittothebanks.Inaddition,thebankspromotecarloanprograminorder to meet the

increasing need of car buyers that makes the car loan market more exciting.Thebankshavelaunchedcarloanprogramsince2001.Theycooperatedwithcarmakersingivingconsultancytocustomersaboutthecarmodelandloansthatmetcustomer’sneed andbudget.Andthebanksprovidecarbuyerfinancialservices,withreasonableinterestrate,longterm, high financed portion, etc

Afternearly10yearsofimplementation,revenuefromcarloanholdsasignificantpartofthebank’stotalprofit.Thebanksactivelyworkwithautomanufacturerstolaunchpromotion,preferentialinterestrateorpromotionalgiftstocustomers.Thispartnershipistopromotecarsales andexpanding the banks’ customer database

BenzVietnamconductedapromotionalcampaign.Amongthat,thebankshallprovideMercedes-Benzcarbuyersapreferentialinterestrateforthefirst12monthsoftheloanterm,7.99%/year for sedan or under 7-seat vehiclesand 11.9%/year for Sprinter (16-seat vehicle).Besidesbrand-

Forexample,from15-Marto30-Apr-2010,TechcombankincooperationwithMercedes-newcarloan,severalbanksfinancedusedcarafterthegovernmentallowedusedcarimportation.Thisservicehasbeenverypotentialandexpectedtodevelop stronglyinthefuture.Brand-new,usedcarimportationandcarpricedecreasehavemadetheautomotivemarketmoreexcitingandleadtostrongercarconsumption

1.2.3 Common car loan attributes

 Product benefits

- Financingc u s t o m e r s t o p u r c h a s e a n d o w n t h e i r f a v o r i t e c a r C a r L o a

n p r o v i d e s customers with the financing package to

drivethecarthey'vealwaysdreamtof

- Documentation, car register are in customer’s name

- Fast and easy arrangement of loans, simple application and quick credit process

- Monthly or periodical repayment tothe banks or the financial companies

 Secured asset:the financed car or real estate

 Repayment mode:interest calculation on declining balance

 Periodical repayment:monthly interest and principal

 Fee and charge:according to SBV and the bank’s current regulations

 Document required for application

 Copy of other asset ownership certificates (if any)

 Businesslicense

 Company charter

 Board of Resolution

 Identification card and household registrationbookofCommittees

 VAT report of the last 6 months

 Tax report of the most recent year

 Carpurchasecontract

 Bank statement of the last 6 months (if any)

 The loanprocedure

 Thecardealersignedpurchasecontractwithcarbuyersandtransferthecontractand customer information to the bank

 The bank collected documents, investigatingandmaking credit decision

 Customersmadedownpaymenttothecardealerandthecardealercommencetheprocess

of car registration

 The car dealer sent receipt of carregistertothebankfordisbursement

 Afterdisbursement,thebankcollectedoriginaldocumentsandworkedwithcustomer for monthly repayment

1.3 CAMPARI Model–TheRiskmanagementmodelofCar loan

CAMPARIstandsforCharacter

–Ability–Means–Purpose–Amount–Repayment-Insurance

 Character

Basiccharacteristicsofcustomerswho arehonest,determined,transparentinloanpayment.Mannerofpaymentonpreviousandexistingobligationsisimportantbecauseitisaverystrongindicationnotonlyofabilitytopaybutalsoofresponsibility.Applicantswithrecordsofcollectioncases,repossessions,b a n k r u p t c y , s w i n d l i n g , b o u n c e d c h e c k s o r e v e n serious personalproblems are normally rejected

 Resume of borrower: name, age, education, family, former profile

 Payment history

 Stability of residence

 Life style

 The honesty in making the application and providing information

 Access Credit Information Centre (CIC)

 Reputation in the industry, in the working field

 Fame of the company where customers work for

 Ability

Evaluatingcustomer’sabilityinbusinessorganization,financemanagementandotherspecialistskillssuchasmarketing,sales,financein order to run and manage their business

 Finance management

 Business organization and management

 Sales&Marketing skills

 Means

Acknowledgingborrower’sincome,thesource ofpayment.Withthisunderstanding,thebanksorfinancialcompaniescanevaluatecustomer’sfinancialcapacityandtheloansettlement.

 Income and expense

Affecting customers’ capital usageRisk of capital stagnancy

Obstructing and making difficulties o

payment to depositorOverdue and bad debt

expenseCost increase

Legal expenseRisk of capital loss

lossProfit decline

Figure1.2:Typesofcreditrisksandaffect

Source: Banking Training&Consultancy(2009), Trainingcourse of banking risks

N H N N dated22ndA p r i l2005issuedbythegovernorofStateBankofVietnam(SBV).Creditriskisthepossibilityoflossesinthebankingactivitiesbecausecustomersorborrowersdonotmake orare not able to perform their obligations under commitment

 Creditr i s k h a p p e n s w h e n a b o r r o w e r m a k e s a d e f a u l t i n s e t t l i n g d e b t o b

l i g a t i o n s underthecontract,includingprincipalor/

andinterest.Thedefaultmightbeadelayed payment or non-payment

 Creditriskcausesfinanciallosses,loweringnetincomeandreducingmarketvalueofprincipal In severe cases, it can lead to big losses, or even bankruptcy

 IndevelopingcountrieslikeVietnam,the banksisshortofadiversityofpersonal financialservices,productsarestillpoor,creditisconsideredasa mainincomesourceandevenauniquesource,especiallyforsmallbanks.Therefore,creditriskislikely high

or low which determinethe business efficiency of the bank

 Otherwise,riskandprofitexpectationsofthebanksareinvolvedeachother,higherriskhigherreturn.Riskisanobjectivefactorthatwecannoteliminateitcompletely,b u t o n l y

m i n i m i z e i t s h a p p e n i n g a n d d a m a g e

1.5 Overduedebt

Balance of overdue debtRatio of overdue

debt= -Total balance

Overdue debt customersRatio of overdue debt

customers= -All customersOverduedebtisthemostimportantmeasuretoevaluatethebank’shealthandefficiency.Itaffects all major business fields ofthe banks

Loan classification

The following categories apply, as perDecision 493/2005/QD-NHNN and its amendments:

30 days

95%

60 days89%

90 days80%

120 days70%

240 days50%

365days10%

Days of overdue Ratio of return

CHAPTER2:CARLOANATTOYOTADEALERS&TFSVN

2.1 Overview ofVietnam’seconomyin recent years

2.1.1 The economic growth

Vietnamwassuccessfullypreventinganeconomicd e c l i n e , m a i n t a i n i n g a s e n s i b l e a

n d sustainablee c o n o m i c g r o w t h V i e t n a m ' s e c o n o m y r e m a i n s s t r o n g ,

w i t h r e a l G D P g r o w t h estimatedtohavereachednearly8.48%in2007,6.23% in 2008 and5.32% in 2009 Followingtheimpetusofeconomicrecessioninmonthsof2008year-end,forthewholeyearof2009,GDPincreasedby5.32%,ofwhichtheagriculture,forestryandfisherysectorroseby1.83%;the industry and construction by 5.52%; and theservices by 6.63%

Positive growth was in 3 sectors of Agriculture, Industry and Services

- Agriculture sector was up 1.83%, agricultureat 1.32%, forestry at 3.77%, fishery at 4.28%

1,064 1,052

843 730

642 561

492 441

416

402

2.1.2 GDPper capita

VietnamG D P p e r c a p i t a i n 2 0 0 9 w a s a t USD1,064(atexchangerateabout18,118VND/

USD).Thiswasmeaningfulinmanyaspects.TheGDPpercapitain2009washigher thanp a s t y e a r s , l i k e l y h i g h e r a n d h i g h e r b y y e a r s T h e i n c o m e e x c e e d e d t h e r a t e o

f U S D 1,000/

person.Ifthegrowthratein2010reach6.5%,CPIfewerthan7%,populationatabout88millionaccordingtothepopulationcount,GDPpercapitain2010shallreachUSD1,110.Vietnam wasremoved from the low income countries, changed to medium income

[For details, we can refer the appendix3–Economic Items]

Figure2.1:Vietnam’sGDPpercapita 1,200

Source: Vietnam Economic Times (2010),Economy of Vietnam&the World 2009-2010

2.1.3 Stabilizing the Macro-economy

Investmentanddevelopment

Totalrealizedinvestmentcapitalin2009atcurrentpriceswasestimatedincreasingby15.3%asagainst2008andequal42.8%ofGDP.Duringthisperiod,thestatesectorgrewby40.5%,thenon-

statesectorby13.9%whiletheFDIsectordecreasedby5.8%.Ofthecapital

investmentfromthestatesector,thefundingfromthestatebudgettook21.8%ofthecountry’stotal investment, equaling 106.8% of the yearly estimate.

Government revenues and expenditures

Asestimated,totalgovernmentrevenuesfrombeginningoftheyearto15/12/2009wasapproximatetotheannualestimate,ofwhichdomesticrevenuesaccountedfor102.5%;revenuesfromcrudeoilw a s equal86.7%;revenuesfromimport-

export:101.6%.Ofthed o m e s t i c r e v e n u e s , r e c e i v i n g f r o m t h e

state-ownede n t e r p r i s e s e q u a l e d 1 0 6 2 % ; f r o m F D I enterprises(excludingcrudeoil):88.8%;fromnon-statei n d u s t r i a l , c o m m e r c i a l a nd s e r v i c e taxes:95.6%;taxesimposedonhigh-incomep e r s o n s : 8 7 % ; p e t r o l e u m f e e s : 1 5 7 5 % ; a n d otherfees:90.8%

Asestimated,totalGovernmentexpendituresfrombeginningoftheyearto15/12/2009wasequal96.2

%oftheyearlyestimate.Ofwhich,spendingforinvestmentanddevelopmentaccountedfor95.2%(onlyspendingforcapitalconstructionwas93.4%);foreconomicandsocialdevelopment,nationaldefenseandsecurity:99.6%;forpayingdebtsandaids:102.7%.T h e Governmentoverspendingin2009was7%ofGDP

Althought h e d e c r e a s e d r a t e o f t h e i m p o r t turnoversw a s h i g h e r t h a n t h a t o

f t h e e x p o r t turnovers, thetradedeficitin2009wasstill atanestimateofUSD12.8billion,reducedby 28.7% as against 2008 and equal 22.5% of 2009’s total exportturnovers

Source: Vietnam Economic Times (2010),Economyof Vietnam &the World 2009-2010

Export decline was due to many reasons The most important one is the negativeimpactsofthefinancialcrisisandeconomicdepressionintheworld.Thelargecurrentexportmarketwasnarrowed,exporttoJapandown27.7%,toAustraliadown48%,toASEANdown16.4%,toEUdown14.4%,toUSAdown5.5%

The

growth targets for 2006-2010 arebasedonthefollowingthreeconsiderations

 Risingcapitalinflows,mainlyintheformofforeigndirectinvestment,shoulddriveeconomicgrowth,particularlyfollowingVietnam’saccessiontotheWTOinJanuary2007



Large-scaleinfrastructureinvestment,ledbytheprivatesector,shouldlifttheeconomy.TheVietnamesegovernmentplanstocallforatotalinvestmentofVND2,677tri-

millionduring2006–2010,equivalentto40.0%ofGDPperannum

 ImprovementsindirectandindirectfinancingchannelsareexpectedtostimulatethedevelopmentofVietnam’seconomy.Internalandexternalpressuresarethought toencourage reforms in Vietnam’s financial sector, in part because:

5 State-owned Commercial Banks(SOCBs)

Vietnam Bank for Social Policy

39 Joint-Stock CommercialBanks

5 Joint Venture Banks

33 Foreign Bank Branches

54 Representative offices of Foreign Bank

SYSTEM OF CREDIT

INSTITUTIONS

People Credit Fund System:

Central Peoples Credit Fundand 24 Branches

926 Local credit funds

- The Vietnamese government plans toprivatizeits national commercialbanks

2.2 Overviewof Credit institutions in Vietnam

2.2.1 Overviewof the forms of credit institutions

Figure2.3:ThesystemofcreditinstitutionsinVietnam

Source: The State Bank of Vietnam’s website(2010),Credit Institutions System

halfofallpersonalsavingsheldinforeigncurrency,g o l d o r o t h e r a s s e t s o u t s i d e t h e financialsystem;t h e b a n k i n g i n d u s t r y i s characterizedbyitssmallsizeintermsofd e p o s i t s a n d

l o a n s a n d b y t h e r e l a t i v e l y l a r g e numbero f b a n k s , b o t h f o r e i g n a n d d o m e s t

i c ; a n d afterexpandingrapidlyinrecentyears,growthinVietnam'sinsurancesectorisshowingsignsofslowing,partlyduetoglobalfinancialcrisis.However,theglobaleconomyanddomesticonehavebeenreceiving optimisticsigns of a recovery and development

2.2.2 Reform ofVietnam’sbankingsystem

2.2.2.1 Overview

Theprocessofshiftingthebankingsectoront oa commercialfootinghas pr og re ss ed s l o w l

y T h e g o v e r n m e n t , w h i c h i s c o m m i t t e d t o strengtheningtheindustry,embarkedona comprehensive reformprogramin2001,underpinnedbymarket-

orientedreformsandstate-ownedenterprisereform.Themaindevelopmentsintheindustryareasfollows:

Despitesomediversification, SOCBs remaindominant

ThefourmainSOCBs,namelytheBankforInvestmentandDevelopmentofVietnam(BIDV),theBankforForeignTrade(Vietcombank),t h e B a n k f o r I n d u s t r y a n d C o m m e r c e ( V i e t i n b a

n k ) , andtheBankforAgricultureandRuralDevelopment(VBARD)–

stillaccountforaround70%ofallloans,inpartbecausemoststate-ownedenterprises(SOEs)areexpected to bank with them

Inlate2007Vietcombank’sinitialpublicofferingwascompleted.Theequitizationoft h e otherlargebanksislikelytobedelayedasaresultofgovernmentworriesaboutoverheatingof the stockexchange, and the potential for excessive inflows of portfolio investment

Joint-stockbanksattract foreign interest

stockcommercialbanks,includingSaigonThuongTinCommercialBank(Sacombank),AsiaCommercialBank(ACB)andVietnamTechnologicalandCommercialJointStockBank(Techcombank)sold10%,8.56%and10%stake to foreign banks, respectively.

Foreign banking operations remain limited

Localbankscurrentlydominatelendingactivity.Foreignbanksfacerestrictionsontheirlending,butthesewillbeeasedsubstantiallyoverthenextfewyears.In2007,theSBVestablished therulesthatforeignbanksmustfollowiftheywishtoincorporateinVietnam: theparentbankmusthaveatleastUS$10billionintotalassets,maintainacapitaladequacyratioofatleast8%,andbeprofitableforthreeconsecutiveyearsinitscountryoforigin.SixforeignbankshavesofarshownaninterestinincorporatinglocallyandamongstthemHSBC,Standard Chartered and ANZ wereturned to 100% foreign-invested banks

Growthinbanklendingacceleratedtoanestimated38%in2007,despitenewprudentialrequirementsforlendingintrod ucedbythe SBV TheSBVhastighteneditsregulationsonbanklendingintwoways.First,ithasdecreedthatcommercialbanksmayallocatenomorethan40%oftheirshort-termfundstomedium-andlong-termlending,andthatbanksmustmaintain

a capital adequacy ratio of 8% and limit lending to any one borrower to

no more ratingsystem,whichregulatesthe proportion of a loan’s value that banks mustkeep in a risk fund reserve

Overthenextfiveyearstheburgeoningprivatesectorwillspearheaddemandforbank lending,a l t h o u g h t h e s u p p l y o f f i n a n c i a l s e r v i c e s isunlikelytobesufficienttomeetthisdemand.ThefactthatSOCBsaccountfor70%ofbankingsectorassets,togetherwiththegovernment'simplicitandexplicitsupportforSOEs,meansthatbanklendingismostlychanneledtowardsSOEs.Buttheremaybesomeimprovementintheforecastperiod,inlinewitht h e g o v e r n m e n t ' s e f f o r t s t

o m o v e a w a y f r o m i t s t r a d i t i o n a l p r a c t i c e o f d i r e c t e d p o l i c y lendinganditsmovestowidenaccesstobank finance,particularlyforsmallandmedium- sized

private enterprises

ThegovernmentismovingtoequitizetheSOCBs,whichwillforcethemtooperateonam o r e commercialfootingandwillenablethemto raisecapitalbysellingsharesratherthanrelying onstate funds

2.2.2.3 Needsforandpotentialsofconsumerfinance

Vietnam’sc o n s u m e r f i n a n c i a l m a r k e t i s c o n s i d e r e d t o b e i n i t s i n i t i a l s t a g e

o f developmentbutwithgreatpotentialwithincreasingdemandforconsumercreditfrombothindividualsandorganizationsinrecentyears

stockc o m m e r c i a l b a n k s , b y w h i c h m a i n servicesprovidedinthemarketincludecarloan,houseloan,overseas-studyloan,etc.Competitionisexpectedtobecomemoreandmore

Thoughallcreditinstitutionsareallowedtosellloans,playersinthemarketaremainlyseverewiththeparticipationofforeigninvestedb a n k s ,

joint-ventureb a n k s a s w e l l a s t h e world’sleadingfinancialinstitutionsprovidingconsumerservices.Inparticular,GeneralElectricMoney(GEMoney),abranchofGeneralElectricCorporationwasgrantedalicenset o openarepresentativeofficeinHanoi andHoChiMinhin2006.PrudentialandSocieùteùGeùneùralehavestepped intoVietnam’spotentialconsumerfinancialmarketwithsuchservicesascarloanandhouseloan

Withthepopulationofaround86millionpeople,morethan50%ofwhichareyoung,Vietnam’sconsumerfinancialmarketisanticipatedtodevelopsharplyandbecomemoreandmore competitive inthe coming time

2.3 Vietnamautomotiveindustry

2.3.1 Developmentof automotive industry

Around18yearsago,whenVietnampromisedtorestrictthenumberofinternationalcarmanufacturers allowed to enter the market, manyrushed to Vietnam to book a place forfuturehope.Consumptionwastoosmallatthattime.Inashorttime,thenumberoflicensesgrantedsoaredt o a d o z e n H o w e v e r , s o m e l i k e C h r y s l e r o r P e u g e o t , a b a n d o n e d t h

e i r p r o j e c t a s quickly as they came after having had measured carefully the market.TheVietnamAutomobileManufacturers’Association(VAMA)isanon-

profitorganizationfoundedin2000,startedwith 11membersandtodayVAMAhas17members whohavebeenmakingtheirrestlesseffortsa n d c o n t r i b u t i o n s t o t h e d e v e

l o p m e n t o f t h e nationaleconomyinoverall,aswellasthenationalautomobileindustryinparticular.Vindaco(DaihatsuVietindo)wasthefirstmemberofVAMAdissolvedinJun2007

ThroughtheyearssincetheAssociation’sinitiation,VAMA membershaveachievedremarkableprogressandprovedthemselvesastheleadingcontributorstothenationaleconomywithoverUSD1.3billionoftaxpaymentandover75,000directandindirectjobsbytheendof2009.Besides,thereareabout160domesticautomobileandpartproducers,makingmainlycommercialandagricultural vehicles

1 Ford Vietnam Limited 11/1997 Ford

2 Hino Motors Vietnam Limited 11/1997 Hino

3 Isuzu Vietnam Limited 1997 Isuzu

4 Mekong Auto Corporation 1992 Fiat, Ssanyong, Iveco

5 Mercedes-Benz Vietnam Limited 8/1996 Mercedes-Benz

6 Toyota Motor Vietnam Company Limited 10/1996 Toyota

7 Vietnam Daewoo Motor Company

Limited(Vidamco)

12/1993 Daewoo,GM-Daewoo

8 Vietnam Motors Corporation (VMC) 1992 Kia, Mazda, BMW

9 Vietnam Suzuki Corporation (Visuco) 11/1996 Suzuki

10 Vina Star Motors Corporation (Vinastar) 3/1995 Mitsubishi

11 Saigon TransportationMechanicalCorporation 12/1992 Samco

12 Truong Hai Auto Corporation 9/2001 Kia, Daewoo,

16 Vietnam Motors Industry Corporation 9/2003 Vinamotor, Transinco

17 Honda Vietnam Company Limited 2005 Honda

Source: Vietnam AutomobileManufacturers’ Association (2010)

Inaddition,theVietnamautomotivemarketalsoconsistofCBUimporterssuchasEuroAutoforBMW,AutomotiveAsiaforAudi,PSCforPorsche,WorldAutoforVolkswagenandothers

2.3.2 Vietnam’s master plan of the automotive industry

Themasterplanoftheautomotiveindustryw a s a p p r o v e d b y t h e P r i m e M i n i s t e r i

n October 2 0 0 4 , c o n t a i n i n g t o t a l l y s e v e n sections.I t c o v e r s m a t t e r s l i k e g o v e

r n m e n t ’ s perspectives,o v e r a l l a n d d e t a i l e d t a r g e t s , orientationo f t h e i n d u s t r

y u p t o 2 0 1 0 ; r e q u i r e d

us organizations

Table2.3:Forecastsofautomotive output up to 2020 and Existing

andrequiredproduction capacity up to 2010 Automotive output Existingandrequiredproductionc apacity up to 2010

Production capacity up

to 2003

Demandfor ecast for2010

Additional requiredi nvestment

> 46 seat 1,600 4,000 9,520 2,000 4,000 2,000

Up to 2 ton 40,000 57,000 50,000 10,000 57,000 47,0002-7 ton 14,000 35,000 53,700 4,000 35,000 31,0007-20 ton 13,600 34,000 52,900 - 34,000 34,000

> 20 ton 400 1,000 3,200 - 1,000 1,000

Source: VietnamGovernment(Oct 2004),TheDecision 177/2004/QD-TTG, The Master Plan

for Developing Vietnam’s Automotive Industry

Thetableshowstheproductioncapacityin2003andforecastofautomobileoutputupto2020anddemandforecastfor2010.Italsoindicatesthatthereisnoneedofanyinvestmenti n t o productionofupto5-seatcars,whilethereisfor6-9seatand10-

16seatcars.Besides,localizationratesarealsoprojectedbythemasterp l a n A c c o r d i n g l y , t

h e r a t e i n 2 0 1 0 f o r

popularvehicles(trucks,busesandcars),high-classvehicles(trucks,b u s e s a n d c a r s ) a n d specialized vehicles are 60%, 40-50%and 60%respectively.Furthermore, it also plans fortheexportsofautomobileandautomotivepartsandaccessoriestobe5-10%ofthetotaloutputoft h e

i n d u st r y i n 2 0 1 0

AutomotiveinVietnamisplannedtobecomeanimportantindustryby2020.However,itscurrentdevelopmentprocessisfarbehindexpectationandtarget.Themasterplanisbuiltto helpthe industry reach the targeted growth.

2.3.3 Financeand supporting policies

ThemasterplanalsoexpectsautomotiveindustryneedsVND16,00018,000billionint h e p e r i o d 2 0 0 1 2 0 1 0 a n d V N D 3 5 , 0 0 0

-4 0 , 0 0 0 b i l l i o n i n t h e p e r i o d 2 0 1 0 - 2 0 2 0 T h e government aids by providing credit toprojectsapproved by the Prime Minister

Sevensupportingpoliciesh a v e b e e n a p p r o v e d :(1)tariffpolicy;( 2 ) m a r k e tp o l i c y ;

(3)investmentpolicy;(4)s c i e n c ea n d t e c h n o l o g y p o l i c y ;(5)humanresourcepolicy;

(6)c a p i t a lattraction policy; and(7)industrialmanagementpolicy

Themaincontentsofthesesupportingpoliciesa r e t h e g o v e r n m e n t ’ s c o m m i t m e n t t

o assisttheautomobileindustryinvariousways.ThescienceandtechnologypolicystipulatesthatofficialfinancialsupportwillbeavailabletoR&D(Research&Development)activitiesaswellasprojectswhichtransfermoderntechnologyofmultinationalcorporations(MNCs)toproduce(i)enginesandgearboxes,and(ii)drive,transmission,andsteeringparts.Therewillalso be a budgetfor training and re-training of managers, designers, and professionalworkers The equitization of automobile assemblers and manufacturers isapriority

2.3.4 The automobile markets in East Asian countries and Vietnam

EastAsiaisregardedasonebigfactorywhereeachcountryplaysa specificroleandcontributestotheoverallproductionscheme.Inthisregion,enhancingindustrialcapacityindependentlyfromneighbouringcountriesisimpracticalandineffective.ChinaandASEAN 4(Thailand,Indonesia,MalaysiaandPhilippines)areVietnam’smaincompetitorsaswellaspo te ntial partnersinproduction.Vietnamshouldnotcompetedirectlywiththesecountriesinthef

i e l d s i n w h i c h t h e y e x c e l I n s t e a d , Vietnams h o u l d i d e n t i f y i t s d y n a m i c c o

m p a r a t i v e advantage,buildindustrialagglomerationaroundit,andparticipateintheregionalproduction

n c e t h e r e g i o n a l productioncapacityandproductmix.Moreconcretely,thefollowingtwostrategicpillarsarerecommended for Vietnam.

 Partse x p o r t a t i o n : V i e t n a m s h o u l d b e c o m e a n e x p o r t b a s e f o r s e l e c t

e d a u t o m o b i l e

parts.Productionshouldbelarge-scaleandinitially100%export-orientedsincedomesticpartsdemandiscurrentlytoosmall.Butovertime,partscanalsobesuppliedtodomesticassemblersasthedomesticmarketexpands

 Assemblyofcertaincarmodels:Vietnamshouldassemblecertainautomobilemodelswhi

charenotproducedbythemotherfactoryinThailandorelsewhere,especially

thoset h a t r e q u i r e s m a l l l o t s a n d f r e q u e n t modificationinspecifications(sinceVietnam’sautomobileindustryhasdevelopedundersuchconditions).ItisuptoMNCstoassignparticularmodelstobeproducedi n V i e t n a m , b u t t h e V i e t n a m e s e governmentcan actively encourage and work with MNCs to promote suchamove.

Due to low pace of international integration, Vietnam’s Economic Freedom Index by Heritage

Foundationin2010isranked144undercategoryof“repressed”,whilethisindexofThailandisran ked64undercategoryof“moderatelyfree”.U n d e r t h e c o n t e x t o f a c c e l e r a t i n g t r a d e liber

alization,ThailandalsopassedthemasterplansubmittedbyThaiAutomotiveInstitute,revising somepolicieswhicharenolongerappropriatesuchaslocalizationrequirementandprotectionofdomesticmarket.AutomotiveindustrynowbecomesveryimportantindustryofThailand with very fast growth of both production and exports

2.4 ToyotaMotor Vietnam

2.4.1 Introduction

Name: Toyota Motor Vietnam (TMV)

Establishment: 05thSep1995

Headquarters: Phuc Thang Ward, Phuc Yen Town, Vinh

PhucHanoiBranch: 8th floor, Viglacera Tower, MeTri,Tu Liem

HCMC Branch: 9thFloor – Centre Point, 106 Nguyen VanTroi,Phu Nhuan District

Investmentcapital: $US 89.6 million

Partners: Toyota Motor Corporation (70%)

Vietnam Engine & Agricultural Machinery Corporation (VEAM) (20%) KUO Singapore Pte Ltd (10%)

Employees: nearly1,400employees(includingseasonalmembers)

Car models:

Hiace,C a m r y , C o r o l l a A l t i s , I n n o v a , V i o s & F o r t u n e r (

L o c a l l y - produced)Land Cruiser, Hilux (Imported)

Product Quality / Cost

Mission: Toyota devotes utmost effortfor customers’ full satisfaction

Bea g o o d c o r p o r a t e citizenw i t h socialc o n t r i b u t i o n t o h e l p p e o p

l e t o improve thequality of lifeMakegreatcontributiontothedevelopment of local industryAchieve stable, long-termgrowth for the company in Vietnam

Bearinginmindthespiritof“Growth,challengeandDevelopment” ,TMVstronglybel ievestheyareabletosharethebenefitsoftheirgrowthtodrivetoanewbrightfutureof“Harmon

ious growth”among people, society and the environment.

Figure2.5: EstablishingSolid Foundation

Human Resources

Source: ToyotaMotorCorporation

2.4.2 Toyota dealernetwork

Toyotahas21authorizeddealersinVietnamuntilAugust2010,6inHanoi,9inHCMC,DongNai,BinhDuongand6inprovincesofQuangNinh,HaiPhong,BuonMaThuot,Da Nang,Vinh-NgheAn,CanTho.In2010and2011,newToyotadealersshallopeninVungTau, LongBien–Hanoi,abranchofToyotaBuonMaThuotinNhaTrang

Toyotap a y s m u c h a t t e n t i o n t o n e t w o r k ventureautomakers.WhileFordVietnamhas11dealers:5inthenorth,2inthecentraland4