VIETNAM NATIONAL UNIVERSITY, HANOI VNU INTERNATIONAL SCHOOL Nguyen Anh Nam ENHANCING CAPITAL MOBILIZATION AT THE JOINT STOCK COMMERCIAL BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM (Tăng cường huy đ[.]
The necessity of research and rationale
Setting out research issues
Effective capital mobilization is essential for achieving national development goals, as it transforms idle societal funds into vital sources of economic growth Commercial banks play a crucial role in this process, serving as the foundation for their broader lending and service activities, despite capital mobilization not generating immediate profits This activity also enhances bank credibility, builds customer trust, and boosts market share and operational scale For example, BIDV has demonstrated leadership by innovatively applying various capital mobilization methods in both local currency (VND) and foreign currencies, supporting economic development and strengthening its market position.
BIDV actively mobilizes both domestic and foreign capital to support its investment and development projects The bank leverages various borrowing methods, including commercial loans, syndicated loans, trade finance, import-export financing, co-financing, and guarantees, to maximize its access to foreign capital By diversifying and multilateralizing its sources of funding domestically and internationally, BIDV has successfully increased the amount of capital mobilized for sustainable growth and development.
Rational
During the operation of the banking system, there were also difficulties and crises, however, the economic crisis showed many problems that needed timely and
10 appropriate solutions One of them is the liquidity of banks (Fritz & Mühlich,
In 2019, banks shifted their focus from profit targets to ensuring liquidity and effective asset and debt management, as profit was no longer the primary concern Many banks relied heavily on borrowed capital, including foreign loans, to fund asset growth, leading to high capital costs and low operational stability and efficiency This reliance increases risks such as interest rate and liquidity risks, highlighting the urgent need for joint stock commercial banks like BIDV to mobilize capital more effectively at reasonable and stable costs According to Nguyen (2016), despite some successes, BIDV faces challenges in maintaining its competitive position without increased capital mobilization Improving operational efficiency, enhancing competitiveness, and strengthening financial health require strategic analysis and solutions to boost capital mobilization, which is vital for the bank's development and contribution to the national economic growth.
“Enhancing capital mobilization at Joint Stock Commercial Bank for
Investment and Development of Vietnam”.
Research Objectives
This research aims to examine the fundamental aspects of capital mobilization activities at BIDV, focusing on key issues related to its financial strategies The general objective is to analyze how BIDV effectively mobilizes capital to support its growth and development Specific objectives include identifying the main challenges faced during capital mobilization and evaluating the effectiveness of existing strategies to enhance financial stability and sustainability.
1) Systematizing the theoretical basis of capital mobilization of commercial banks;
2) Analyzing and evaluating the current situation of capital mobilization at BIDV, clarifying the achieved results, limitations and causes of existing limitations;
3) Proposing a solution system and propose relevant agencies to support in implementing solutions to mobilize capital at BIDV.
Subject and scope of research
This research focuses on evaluating the current state and effectiveness of capital mobilization activities at BIDV It aims to assess how well the bank is achieving its capital mobilization objectives and identify areas for improvement The study also seeks to propose strategic solutions to enhance BIDV’s capital mobilization efforts, supporting the bank’s overall development and growth By optimizing capital mobilization strategies, BIDV can strengthen its financial position and ensure sustainable banking operations.
This research examines the deposit capital mobilization activities of the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) from 2015 to 2019 across key urban centers including Hanoi, Ho Chi Minh City, Da Nang, Can Tho, and select branch locations The study aims to analyze trends, challenges, and opportunities in deposit mobilization during this period to support strategic growth and financial stability Focusing on these major regions provides comprehensive insights into regional variations and overall performance within BIDV’s deposit mobilization efforts nationwide.
Method of research
Data Collection
Primary data on capital mobilization at BIDV from 2015 to 2019 were collected from internal documents detailing regulations and types of capital mobilization issued and maintained by the bank Secondary data were derived from these primary documents and further analyzed, interpreted, and discussed to support research objectives Additionally, the thesis utilized secondary data from scientific research works, including doctoral dissertations, master theses, annual reports, financial statements, and reports from BIDV's general accounting department, to provide comprehensive insights into capital mobilization activities.
Data processing
Descriptive analytics is a vital component of data analysis that helps researchers make informed strategic business decisions by examining historical data This approach simplifies complex data into easy-to-understand formats, making it essential for gaining insights and supporting decision-making processes (Wang et al., 2018).
The comparative method is utilized to analyze and assess BIDV's current capital mobilization performance by comparing key criteria across different years and periods Additionally, the collected data is processed efficiently using Excel software to ensure accurate evaluation and meaningful insights.
Outline of thesis
The thesis has a layout of four (04) chapters, presented from theoretical and practical foundations to solutions and recommendations Specifically, the chapters are as follows:
Chapter 1: Basic principles of capital mobilization activities of commercial banks Chapter 2: Current situation of capital mobilization at at The Joint Stock Commercial Bank for Investment and Development of Vietnam
Chapter 4: Solutions to enhance capital mobilization at at The Joint Stock Commercial Bank for Investment and Development of Vietnam
Scientific and practical meanings of the topic
This article explores the scientific foundation of capital mobilization at commercial banks, emphasizing the importance of synthesizing and advancing fundamental theories to develop a comprehensive theoretical framework By contributing to the theoretical basis for capital mobilization, this work aims to support the effective mobilization of funds, ensuring the stability and growth of commercial banking operations.
This article emphasizes the importance of optimizing capital mobilization strategies at the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) It highlights the need to consider the current economic conditions and effective capital mobilization practices to strengthen the bank’s financial stability Additionally, the thesis proposes targeted solutions to improve capital mobilization efforts, focusing on developing competitive policies to succeed in an increasingly fierce banking industry environment.
Previous Studies
Luong (2014) investigates capital mobilization activities and explores solutions to enhance capital growth at Hanoi Bank for Agriculture and Rural Development He also proposes development strategies to increase capital at the Ho Chi Minh City branch, aiming to strengthen bank financial stability Additionally, Nguyen (2018) conducts an analysis of related financial practices, contributing to a better understanding of effective capital mobilization techniques These studies collectively emphasize the importance of strategic solutions in boosting banking capital and improving financial performance.
This article assesses 13 capital mobilization activities, analyzing each in terms of structure, scale, and costs, to propose effective solutions for enhancing capital mobilization Existing studies by Vu & Mai (2020) focus primarily on mobilization sales without in-depth evaluation of effectiveness or comprehensive strategies, while Hoang & Wei (2019) highlight issues in improving capital mobilization for the Vietnam Bank for Social Policies but fail to offer comprehensive, cost-effective solutions aligned with different strategic stages Given the lack of an official study on capital mobilization efficiency and improvement strategies at BIDV, this research aims to address this gap by developing tailored solutions to improve the bank’s capital mobilization effectiveness.
BASIC PRINCIPLES OF CAPITAL MOBILIZATION
Basic issues of capital mobilization of commercial banks
1.1.1 Major activities of commercial bank
According to the Law on Vietnamese credit institutions No 07/VBHN- VPQH dated December 12 th , 2017, effective from January 15 th , 2018, commercial banks are allowed to mobilize capital in the following types:
Receiving deposits from organizations, individuals and other credit institutions in the form of non-term deposits, term deposits, promissory notes, bills, and bonds to mobilize capital domestic and abroad
Borrowing capital from the State Bank in the form of refinancing according to the provisions of the Law on the State Bank of Vietnam
Borrowing capital from credit institutions, domestic and foreign financial institutions in accordance with the law
1.1.2 Capital mobilization activities of commercial bank
1.1.2.1 Definition of Capital mobilization of commercial bank
Mobilized capital, as explained by Bhagavatula et al (2010), refers to the monetary value mobilized by banks from economic organizations and individuals through credit, payments, and other business operations It constitutes the largest proportion of a commercial bank's total capital and is crucial for supporting all its business activities Capital mobilization involves various activities such as borrowing, issuing securities, forming joint ventures and partnerships domestically and internationally, and creating real estate trust funds Understanding mobilized capital is essential for comprehending how banks sustain their financial operations and growth.
This is the largest source of capital in the bank It is the monetary value that the bank mobilizes from economic organizations and individuals in the society
Mobilized capital is essential for banks, serving as the foundation for deposit operations and business activities, with assets owned by different individuals but used by the bank without ownership rights According to Pistor (2019), the bank's responsibility is to refund the principal and interest on time, whether from term deposits or upon customer withdrawal, highlighting the importance of this capital source As Tran, Ong & Weldon (2015) explain, commercial banks mobilize capital through various means including deposits (non-term, term, savings), issuing debt instruments like bonds and bills, borrowing, and acting as trustees or agents for organizations, as well as providing payment facilities such as ATM withdrawal cards Deposit mobilization constitutes the largest portion of bank capital, accounting for approximately 70-80%, with non-term and short-term deposits being highly influenced by the market and regional business environment Consequently, banks must analyze and forecast capital supply and demand carefully to develop effective policies and manage their capital resources effectively.
- Mobilized capital and its role for commercial banks
Mobilized capital primarily determines a bank's operational scale and credit capacity Large banks typically have more diversified investment and loan portfolios, allowing them to lend internationally and domestically, whereas small banks focus mainly on community-based lending with limited scope and volume Additionally, small banks' limited capital restricts their ability to swiftly adapt to policy changes, which in turn impacts their capacity to attract investment from various economic sectors and population groups.
Mobilized capital is crucial for determining a bank's payment capacity and enhancing its market prestige (McKinnon, 2010) A strong reputation enables the bank to survive and expand its operations, with its willingness to meet customer payments reflecting its financial strength Higher payment capacity, driven by larger available capital, fosters favorable conditions for extensive business activities, competitiveness, and overall market standing, thereby reinforcing the bank’s prestige.
Commercial banks, functioning as payment centers, open deposit accounts for customers that facilitate large-scale money transfers for payment purposes The interconnected nature of receivables and payables in the bank's current account system helps maintain a reserve balance, which serves as a low-cost source of mobilized capital Effectively leveraging this capital can significantly enhance the operational efficiency of commercial banks, making them more responsive to business activities and financial needs.
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17 operations of commercial banks include deposits of businesses, economic organizations, individuals and savings deposits of residents a Mobilizing capital from Non-term deposits
Non-term deposit accounts, also known as payment deposit or checking accounts, are primarily used by businesses, organizations, individuals, and banks for making payments in production, business, and consumption activities (Ho, 2018) These accounts allow depositors to deposit and withdraw funds freely at any time within their account balance, providing high liquidity and flexibility Due to their focus on facilitating payments rather than accumulating interest, banks typically do not pay interest on these deposits or offer only low interest rates.
Ho (2018) says that Non-term deposits are reflected in an account called
A non-term deposit account, commonly known as a checking account, typically maintains a credit balance However, if the bank and the depositor agree to an overdraft facility, the account can also have a debit balance, making it similar to a current account The bank does not regulate the credit balance but manages the debit balance within an agreed overdraft limit; for example, with an overdraft limit of 100 million VND, the maximum debit balance allowed is also 100 million VND.
The deposit account establishes an economic and legal relationship between the bank and the depositor, requiring both parties to adhere to regulations regarding account opening and usage The Governor of the State Bank issues relevant legal directives, and depositors must complete procedures such as registering signature samples and seal impressions with the bank Additionally, the bank has the right to refuse payments if the depositor breaches regulations related to account management and banking documentation compliance.
18 b Mobilizing capital from term deposits
A term deposit is a type of deposit where customers place funds in a bank with a pre-agreed interest rate and withdrawal period, primarily serving economic organizations and financial institutions (Samad, 2018) This form of deposit is considered relatively stable because banks can determine the customer's withdrawal timing, allowing them to use the funds actively for their business purposes during the agreed period Typically, term deposits have larger average balances than savings deposits, providing banks with a substantial source of capital for their operations However, since this capital is temporarily idle during the enterprise's business cycle, large-scale withdrawals by customers can pose significant challenges for banks.
Saving deposits are individuals’ funds deposited in banks, recorded on a savings card, and earning interest as per the bank’s regulations, with deposit insurance protecting these funds under legal provisions These accounts cannot be used for issuing checks or conducting payment transactions Attracting deposits from residents is a crucial function of commercial banks worldwide, providing a stable source of capital that enables banks to proactively engage in lending and investment activities Although savings accounts often offer higher interest rates, the average balances held in these accounts tend to be relatively small.
To meet the diverse needs of customers, commercial banks employ various mobilization methods, including offering longer-term deposits, higher interest rates, and additional incentives According to Mpiira et al (2014), there are two main types of savings deposits: non-term deposit accounts, designed for individual customers with temporarily idle funds seeking safe and profitable storage without specific future plans, and term deposits Customers opt for non-term deposits primarily for safety and convenience rather than for maximizing profit, as these deposits tend to be less variable than other deposit accounts, allowing banks to manage liquidity more effectively.
Term deposit accounts typically offer higher interest rates than regular savings accounts, making them an attractive option for customers seeking safety and profitability These accounts are designed for individual customers who want to securely deposit money with a planned future use, based on an agreed-upon deposit and withdrawal schedule The interest rates on term deposits vary depending on the deposit term, interest payment method, and currency, and are generally higher than non-term deposits Additionally, banks mobilize capital through the issuance of valuable papers, providing another means to raise funds for financial activities.
Valuable papers, as defined by Minh et al (2013), are certificates issued by credit institutions that facilitate capital mobilization and confirm obligations to repay deposits within specified periods, along with interest payments and commitment terms These financial instruments are essential for establishing credit relationships between institutions and investors Valuable papers can be categorized into different types based on ownership, including registered valuable papers, which are issued as certificates or books with the owner's name, and non-registered valuable papers, issued as certificates without specific owner identification These classifications are crucial for understanding the nature and use of valuable papers in financial markets.
Evaluation criteria of capital mobilization in commercial bank
1.2.1 Scale of capital and capital growth rate
Effective capital mobilization requires reaching a critical scale aligned with the bank's mobilization plan and business needs, as highlighted by Hilferding et al (2019) The scale is evaluated through the total capital mobilization balance, including the credit balance of various deposit types over a period A larger scale of capital mobilization enables banks to expand their business activities, enhance liquidity, and improve capital stability Ultimately, mobilized capital constitutes the vital portion of a bank’s total capital, essential for sustainable growth and operational resilience.
Commercial banks' mobilized capital accounts for the highest proportion, playing a crucial role in financial stability The scale of their mobilized capital is assessed by comparing the total amount over specific periods, such as monthly, quarterly, or annually This comparison enables analysis of capital mobilization activities at the end of each month, quarter, or year, providing valuable insights into the banks' financial performance and efficiency over time.
The growth rate of mobilized capital is determined by the following formula:
The growth rate of mobilized capital
= ∑ Mobilized capital in this period - ∑ Mobilized capital in previous period
The scale of capital is an important indicator; however, when used alone, it does not fully capture a bank's ability to mobilize capital To better assess this capacity, relative indicators based on capital scale are employed, providing a more comprehensive view of a commercial bank's capital mobilization effectiveness Once a bank successfully mobilizes substantial capital, its focus shifts to ensuring the stable growth of this capital, as large capital volumes alone do not guarantee effective lending or investment activities Maintaining predictable cash inflows and outflows is crucial for strategic decision-making, especially in lending and investing The quality of capital growth is evaluated by comparing it against the bank’s development plans, industry standards, and the performance of similar-sized banks, ensuring sustainable and balanced growth aligned with broader industry benchmarks.
1.2.2 Structure of capital mobilization: by subject, terms, currency
According to Stein (2012), different types of deposits have distinct requirements regarding costs, duration, and funding of appropriate assets Changes in the mobilized capital structure impact a bank's asset composition and cost decisions Clearly defining this structure helps banks limit risks and minimize input costs It is essential to compare the mobilized capital's object, term, and currency with associated lending and investment demands to ensure effective capital mobilization and achieve optimal returns.
Each bank must develop a comprehensive capital source plan for every period, focusing on increasing the scale of each funding source and enhancing the flexibility to adjust the source structure This strategic planning ensures banks can promptly meet the evolving lending, investment, and payment needs of businesses and residents, supporting ongoing financial stability and growth.
Proportion of each source of mobilized capital = Mobilized capital type i
Analyzing the structure and proportion of mobilized capital provides an overview of a bank’s capital composition, highlighting the share of each capital type and assessing whether the structure is reasonable According to Schaner (2017), a well-balanced mobilized capital structure should match the demand for capital in terms of both term lengths and currencies Specifically, if the demand is mainly for medium- and long-term loans and investments, a high proportion of short-term mobilized capital is considered unreasonable However, it is important to recognize that the capital structure can vary over time to align with changing capital requirements.
Mobilized capital from residents and businesses typically accounts for over 50% of total bank capital, serving as a primary source for bank operations and annual growth targets However, this capital is unstable, as customers can withdraw their funds at any time, even from fixed-term deposits, requiring banks to maintain liquidity reserves to cover potential withdrawals Fluctuations in short-term deposits significantly impact banks' liquidity demands According to Fritz & Mühlich (2019), capital mobilized from residents and businesses has a high cost of capital due to interest payments and deposit insurance fees, and it is partly reserved as mandated by the State Bank’s reserve ratio, making it a substantial input cost for commercial banks Despite these drawbacks, this source remains highly competitive within the banking industry.
23 commercial banks because in order to grow credit, the banks must increase capital mobilized from residents and businesses
The cost of capital mobilization includes the primary expense of interest payable to customers, which significantly influences bank income, along with costs related to printing, issuance, collection, verification, new product development, advertising, marketing, and customer care Among these, interest costs—the interest paid based on deposit interest rates—represent the largest expense and are crucial for expanding lending and investments While higher interest rates enable increased mobilization, they also raise costs, and if revenue does not keep pace, profits decline Therefore, accurately calculating the reasonable cost of capital mobilization is essential, often utilizing the Average Cost of Capital (ACC) as a key indicator, which measures how much the bank must spend to mobilize capital and is determined by specific financial formulas.
Average cost of mobilizing capital =
Cost of mobilizing capital x 100% Scale of capital mobilization
A lower capital mobilization ratio indicates higher efficiency in resource utilization, and comparing different periods allows banks to assess cost savings and improved mobilization efficiency Currently, with similar interest rates across commercial banks, non-interest costs primarily influence a bank's ability to mobilize funds at a lower cost (Were & Wambua, 2014) Accurate calculation of these costs is essential, typically achieved through the average cost method based on original costs, which offers valuable insights into past capital management performance.
Average interest cost = Interest cost
Costs set to cover interest expenses =
1.2.4 Relationship between capital mobilization and capital using
Increasing capital mobilization by commercial banks depends on how effectively that capital is utilized According to Omankhanlen (2012), capital mobilization activities primarily aim to finance bank operations through lending and investment Once capital is mobilized, the key focus is on using it to achieve safety and profit objectives This involves comparing total loans and investments with the total mobilized capital to evaluate utilization efficiency The relationship between capital mobilization and its application is assessed based on specific criteria that ensure optimal use of funds for financial stability and profitability.
Rate of using of mobilized capital (%) = Total credit loans and investments x 100 Total mobilized capital
The criterion evaluates both the source and utilization of mobilized capital, as well as the institution’s capacity to meet business demands According to Dosi (2015), achieving a 100% target requires balancing the bank’s lending and investment needs with capital mobilization efforts When all mobilized capital is allocated to lending and investment but those demands remain unmet, it indicates effective capital usage but insufficient mobilization Therefore, increasing capital mobilization is necessary to fully meet lending and investment requirements and ensure optimal financial performance.
The relationship between capital mobilization and capital usage is illustrated through the scale comparison between the two, the growth rates of mobilized capital versus used capital, and the structures of both mobilization and usage terms It is essential that the scale of capital mobilization exceeds the use of new capital to maintain a rational policy of increasing mobilization at commercial banks A higher growth rate of capital usage compared to deposits over the long term can lead to imbalances between mobilized and utilized capital Additionally, since used capital is predominantly long-term, efforts should focus on increasing long-term capital mobilization to support sustainable growth Balancing capital usage and mobilization by currency type also enhances the effectiveness of capital mobilization strategies.
1.2.5 Different between average interest rates and average saving interest rates
Bank earnings primarily come from interest income, while interest costs constitute the main expense, and increasing mobilization scales can boost profitability through asset growth (Adusei, 2015) Bank profitability depends on the return on assets exceeding the interest rate on capital, enabling strategies such as offering high deposit rates, sourcing large-scale funds for lending at favorable interest rates, or finding low-cost funding options Effective capital mobilization occurs when capital 규모 and structure are allocated to earning assets that generate sufficient returns (Dosi, 2015) The profitability of capital mobilization can be assessed by analyzing the difference between average lending interest rates and average deposit rates.
Income from loan activities x 100 Total loan balance
Interest cost x 100 Total mobilized capital
Interest different = Average lending rate - average deposit rate
The higher the evaluation criteria are, the more favorable conditions there are for improving the bank's business results A difference less than zero indicates favorable conditions, while a difference greater than zero suggests less favorable conditions Regular and periodic assessment of capital mobilization performance is essential for the bank's business development and should be integrated into management activities Besides quantitative indicators, qualitative factors such as the bank's ability to access capital from the State Bank, the money market, and other sources should also be considered to provide a comprehensive evaluation.
Factors affecting capital mobilization activities of commercial banks
Capital mobilization is a fundamental function of commercial banks, as it provides the essential funds needed for their operations and growth To optimize results, banks must focus on strategies that enhance capital mobilization while analyzing the key factors influencing this process By maximizing positive contributors and minimizing negative influences, commercial banks can improve their financial stability and overall performance.
Manager attitudes towards capital mobilization vary based on the bank's business strategies; some prioritize mobilizing capital as a key goal, while others focus on alternative activities If a bank's leadership does not emphasize capital mobilization, they may divert resources to other business objectives, resulting in limited growth in capital mobilization efforts Therefore, the bank's strategic focus significantly influences its approach to capital mobilization and overall business development.
Interest rate policy: Among the factors affecting capital mobilization activities
27 of commercial banks, interest rate policy plays an extremely important role Blackburn
Interest rates represent the cost of mobilizing capital, serving as the price of capital and directly influencing a bank’s competitiveness with others Implementing flexible, reasonable, and timely interest rate policies can enhance the attractiveness of deposit products Higher interest rates also reflect the risks borne by banks during the mobilization process, with longer-term deposits typically commanding higher rates due to increased risk premiums Currently, with a customer preference for short-term deposits, the interest rates for these shorter terms have risen significantly compared to previous years.
Nguyen (2016) explains that bank competition in Vietnam is not about racing on interest rates, as deposit rates are often limited by government ceilings and regulations Banks seek to mobilize capital primarily for lending and investing to generate profit, which depends on the margin between lending and deposit interest rates Higher deposit interest rates lead to higher lending rates, but lending rates are legally capped at 150% of the base interest rate While the State Bank sets these interest rate ceilings based on current economic conditions, banks often find ways to increase interest rates within these limits to maximize profits Achieving a competitive and flexible interest rate structure that maintains a stable profit margin remains the primary goal for commercial banks.
The Bank’s customers are diverse in terms of composition and purposes of using products and services Each customer comes to the Bank with different
Deposit needs vary depending on individual plans and purposes By diversifying products with various capital mobilization methods, banks can flexibly satisfy different customer needs This approach attracts more customers, leading to increased mobilized capital According to Fritz & Mühlich, offering a range of financial products enhances customer engagement and bank performance.
Diversified and flexible capital mobilization methods enable banks to develop complex capital structures with various terms and currencies, effectively meeting diverse customer investment and lending needs Increasing the variety of capital mobilization options provides more choices for customers, expands the target customer base, and helps disperse risks By offering multiple mobilization channels, banks can attract clients with different financial goals Additionally, diversifying banking products and services alongside capital mobilization enhances the bank's capacity to attract and retain capital efficiently.
Commercial banks categorize customers based on specific criteria to effectively serve their needs, with VIP customers being regarded as the most profitable for both current and future banking relationships (Dieu, 2020) To enhance customer satisfaction, they often provide VIP clients with private rooms, dedicated personal care staff, exclusive conferences, and special gifts on important occasions A well-designed customer care policy is crucial for maintaining the bank’s reputation and demonstrating professionalism; however, dissatisfaction among VIP clients can result in significant financial and customer base losses, as these key clients—such as merchants and business owners—are vital to the bank’s success (Vu & Mai, 2020).
- Cost of mobilizing capital other than interest rate
Hoang & Wei (2019) highlight that the cost of capital mobilization significantly impacts the capital mobilization efforts of commercial banks When banks perceive that mobilization costs are excessive relative to their expectations, it can hinder their ability to raise funds efficiently, ultimately affecting their financial performance and growth prospects Effective management of capital mobilization costs is essential for commercial banks to optimize their funding strategies and maintain competitive advantage in the banking sector.
The 29 capital mobilization policy will be reviewed and reduced, particularly impacting small-scale commercial banks These banks often face higher average costs of mobilization, which include payable interest, administrative expenses, printing and issuance fees, marketing expenditures, product development costs, and human resources expenses.
- Reputation and scale of the Bank
According to Adusei (2015), building a strong brand and reputation is essential for banks, as it significantly influences capital mobilization and offers a competitive advantage Depositors seek not only profits but also security and the ability to withdraw funds when needed; thus, reputable banks are often preferred even with slightly lower interest rates Establishing trust and loyalty among customers reduces capital loss risks, lowers mobilization costs, and enhances overall financial stability and efficiency.
- Marketing activities of the Bank
According to Tuten (2020), marketing involves advertising and promotional activities designed to build a strong and recognizable brand image for the bank and its products Since banks offer intangible and diverse services catering to complex customer needs, effective marketing is essential to differentiate the bank from competitors, enhance attractiveness, and capture customer attention Regardless of service quality, the bank cannot succeed if it fails to attract customers to conduct transactions Tuten emphasizes that successful banking marketing creates a distinct, memorable, and positive brand perception, fostering a professional and friendly image from headquarters to branch levels to ensure lasting customer engagement and loyalty.
30 individual in the Bank Diversifying products, introducing services in a clear, easy- to-understand manner with simple and no-difficulty procedures will attract customers to the Bank
- The Bank’s facilities and technology
A reputable bank with a strong brand identity gains a competitive advantage by attracting more customers than its rivals Establishing a distinctive, recognizable, and memorable image requires creating a unified visual identity from the bank's headquarters, paired with modern facilities and technology Modern, well-designed facilities leave a positive first impression and convey professionalism, while up-to-date technology streamlines operations and enhances customer convenience Investing in technological modernization and facility upgrades boosts operational efficiency, supports staff performance, and simplifies transactions for customers.
According to Shankar & Kumari (2016), the human factor plays a crucial role in the success of a bank’s operations, including capital mobilization While modern infrastructure and equipment are important, exceptional service quality driven by attentive, professional, and dedicated staff is essential for creating a positive impression and building the bank’s image Prioritizing service quality and staff attitude attracts more customers, thereby enhancing capital mobilization capabilities Although the traditional view emphasized treating customers as "kings" or "gods" in service industries, contemporary organizations recognize that employees are invaluable assets, highlighting the importance of valuing and empowering staff to improve service delivery and organizational success.
31 necessary to improve the qualifications and attitudes of employees and it is also necessary to have a reasonable reward policy to motivate employees
Regulations of the State Bank
Commercial banks operate under the oversight of the State Bank of Vietnam, which is responsible for regulating and supervising banking activities According to Tung et al (2019), the State Bank of Vietnam serves as the primary authority in currency management, issuing currency, and advising the government on monetary policies Its key functions include managing foreign currency reserves, setting exchange rate and interest rate policies, and drafting laws related to banking and credit institutions The State Bank also oversees the establishment of new banks and credit institutions, as well as the management of state-owned commercial banks, ensuring a stable and secure financial system.
Commercial banks mobilize deposits to lend to the market or invest for profit, but not all mobilized funds are loaned or reinvested According to State Bank regulations, banks must adhere to required reserve ratios and risk provisioning, with the State Bank setting the basic interest rate that influences their lending capacity Banks can lend at interest rates up to 150% of the base rate, so when the base rate decreases, the maximum lending and deposit interest rates also decline This reduction in deposit interest rates leads to decreased capital mobilization and can negatively impact depositors’ confidence, ultimately affecting the bank's business performance.
CURRENT SITUATION OF CAPITAL MOBILIZATION AT
Overview of Joint Stock Commercial Bank for Investment and Development of
2.1.1 Process of formation and development
The Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) was established on April 26, 1957, originally named the Bank for Construction of Vietnam Between 1981 and 1989, it operated under the name the Bank for Investment and Construction of Vietnam From 1990 until April 27, 2012, it was known as BIDV, the Bank for Investment and Construction of Vietnam On April 27, 2012, the bank officially rebranded as the Joint Stock Commercial Bank for Investment and Development of Vietnam, a name it holds today, establishing its prominent position in Vietnam's banking sector (BIDV, 2019).
Joint Stock Commercial Bank for Investment and Development of Vietnam has engaged in the following business lines:
Commercial bank: BIDV has experience in providing a full range of modern and convenient banking products and services
Insurance: providing suitable designed non-life insurance products in the overall package of BIDV's products to customers This activity is carried out through BIDV Insurance Corporation (BIC)
BIDV Securities Company (BSC) offers comprehensive brokerage, investment, and investment consulting services, supported by a rapidly expanding nationwide network of order-receiving agents These securities activities are designed to deliver expert financial solutions and seamless transaction experiences across the country.
Financial investment involves contributing capital to establish enterprises and invest in key projects that propel national development Notable initiatives include Vietnam Aircraft Leasing Joint Stock Company (VALC), Expressway Development Company (BEDC), and the significant investment in Long Thanh International Airport, highlighting the crucial role of strategic investments in fostering economic growth and infrastructure advancement.
BIDV has navigated numerous challenges and milestones throughout its establishment and growth, ultimately positioning itself as one of Vietnam's three largest joint-stock commercial banks in terms of total assets This significant achievement reflects its resilience and strong financial performance in the competitive banking industry.
With over 18,000 highly trained and experienced financial consultants, BIDV has accumulated decades of expertise in the financial industry The bank’s skilled workforce enables it to effectively achieve the strategic goals set by the board of directors BIDV’s commitment to maintaining top-tier human resources ensures exceptional service quality and strong market performance.
Individuals: Millions of individual customers have been using BIDV's services
Corporate: has the largest corporate customer base in the system of credit institutions in Vietnam, including large groups and corporations: small and medium corporates
Financial institutions: BIDV is the reliable choice of large institutions such as World Bank, ADB, JBIC, NIB,
Always innovating and applying technology to effectively serve the administration and development of advanced banking services
In 2009, BIDV maintained its leading position in Vietnam's ICT Index, which measures readiness for information technology development and application Additionally, BIDV was recognized among the top 10 exemplary CIOs in Indochina and Southeast Asia, highlighting its prominent role in IT leadership within the region.
2010 continuously from 2007 up to now
In 2012, BIDV was honored with two prestigious awards from Asiamoney Magazine: "Best Overall Domestic Cash Management Services" and "Best Overall Cross-Border Cash Management Services," highlighting its leadership in innovative banking solutions Additionally, BIDV's electronic payment and collection solutions stand out as the only Vietnamese banking products to rank among the top in the industry, demonstrating the bank's commitment to technological excellence and comprehensive cash management services.
10 Vietnam Gold Products 2012 by the National Office of Intellectual Property - Ministry of Science and Technology organization
Over the past three years, BIDV has leveraged its strengths and significant advancements in information technology modernization to enhance its services In 2013, the Council recognized BIDV as "The Bank that Provides the Best Money Management Service," highlighting its excellence in financial management This accolade was part of the Asian Banking and Finance Wholesale Banking Awards and was awarded based on three key criteria: improvement factors, differentiation from other products and services, market efficiency, and flexibility to adapt to opportunities for change and improvement.
The network operates with the following highlights:
Banking network: BIDV has 117 branches and over 660 network points, more than 1,200 ATMs and 5000 POS in 63 provinces/cities nationwide
Non-banking network: BIDV Securities Company (BSC), Financial Leasing Company, BIDV Insurance Corporation (BIC) with 20 branches nationwide
Commercial presence in foreign countries: Laos, Cambodia, Myanmar, Russia, Czech Republic
Foreign joint ventures with BIDV include the VID-Public Joint Venture Bank in partnership with a Malaysian firm, the Laos-Vietnam Joint Venture Bank with a local Laotian partner, the BIDV Tower Joint Venture Company in collaboration with a Singaporean partner, and the BIDV-Vietnam Partners joint venture investment management company with a US-based partner These strategic alliances enhance BIDV's international presence and expand its global investment footprint.
Figure 2.1: Organizational structure of BIDV (Source: Annual Report 2019)
2.1.3 Forms of capital mobilization at BIDV
Demand deposits are funds that customers can withdraw at any time, providing instant access to their money These deposits typically offer little to no interest but enable customers to enjoy essential payment services through the banking system Customers primarily using demand deposits prioritize the safety of their funds and efficient execution of payment transactions over earning high interest rates (BIDV, 2019)
A stratified interest payment account is a financial product designed to mobilize capital from demand deposits by offering progressively higher interest rates based on the deposit amount, as defined by BIDV Customers with larger balances in their demand deposit accounts benefit from increased deposit interest rates, incentivizing higher savings and deposits (BIDV, 2019)
A deposit for securities trading is a checkable account product (CA) designed for securities investors It allows customers to open trading accounts with securities companies, which then facilitates the opening of deposit accounts at BIDV through authorized securities firms This account serves as a secure and efficient financial tool for investors engaging in securities trading.
39 the use of an online payment program BIDV@Securities (BIDV, 2019)
A term deposit is a savings form where customers cannot withdraw funds before the agreed-upon maturity date without incurring penalties While term deposits typically offer higher interest rates, they do not include payment services from the banking system Customers choosing this option primarily seek to earn higher interest income, prompting commercial banks to utilize interest rate strategies to channel these funds effectively.
Online Term Deposit: Online Term Deposit is a savings deposit product that allows customers to deposit money directly from a personal computer connected to the Internet (BIDV, 2019)
Term savings deposits allow customers to select a specific deposit duration and suitable interest payment method based on their financial goals Customers can only withdraw their funds after the agreed-upon deposit term, providing a secure saving option If the deposit matures and the customer does not withdraw the funds, the deposit will automatically roll over for an additional term of the same length at the prevailing interest rate Note that demand deposits with prepaid interest are not eligible for rollover, ensuring clarity in deposit handling.
A savings account for children, designed as a meaningful gift from parents or relatives, is a demand deposit product available for children aged 2 to 15 years This account, opened in the child's name, allows for regular or occasional deposits to accumulate funds over time It aims to support various future needs of the child, such as education, travel, shopping, or additional savings, helping children grow up with financial love and security (BIDV, 2019).
Accumulated Deposits Remittances: Since August 2011, Bank for Investment and Development of Vietnam (BIDV) has launched a new product, Accumulated Remittances, to serve customers who are about to leave foreign
Analysis of capital mobilization at BIDV according to evaluation criteria
Prior to 2017, BIDV primarily focused on wholesale banking and largely overlooked retail banking services for residents due to high operational costs, expensive human resources, and limited efficiency.
2.2.1 Analysis of capital size and growth rate over the years
At the end of 2017, BIDV's leadership implemented decisions to support retail activities, leading to an 11% increase in total mobilized capital in 2018 to VND 1.226.454 billion, representing 12.3% of the industry's total capital mobilization In 2019, capital mobilization rose further to VND 1.374.758 billion, a 12.1% increase from 2018, with customer deposits from organizations and individuals reaching VND 1,167.995 billion, accounting for 11.5% of the industry market share Despite the economic difficulties caused by the Covid-19 pandemic, including business bankruptcies and high inflation, BIDV's capital mobilization as of June 30, 2020, reached over VND 1,111.400 billion, growing by 1.52% year-to-date, reflecting strategic efforts to maintain capital balance amid challenging conditions The slight decline in capital mobilization during the first quarter of 2020 was offset by stabilization in the second quarter, demonstrating BIDV's resilience and commitment to ensuring financial stability during difficult times.
Figure 2.2 Total amount of capital raised over the years
Source: BIDV's annual report for the years 2015-2019 Table 2.1 Evaluation compared to the plan proposed by BIDV (Source: BIDV,
Plan for 2019 at Decree 395/2019/NQ- DHDCD
TH 2019 Evaluation against plan Absolute
11% growth 1.053.826 12,1% Exceeded compared to plan
Mobilizing capital from organizations and residents
According to Ai (2020), capital mobilization at BIDV took the lead with a
As of 2023, the total banking assets reached VND 1.2 million billion, representing a 12.1% increase since the beginning of the year VietinBank (CTG) and Vietcombank (VCB) are the leading banks, collectively holding nearly VND 950 trillion in assets While VietinBank’s assets grew by 9%, Vietcombank experienced a higher growth rate of 15%, outperforming the market and reflecting robust performance within the banking sector.
Leading joint stock commercial banks rank just after the top positions, with significant differences in size Major banks such as Sacombank (STB), ACB, MB (MBB), Eximbank (EIB), HDBank (HDB), Techcombank (TCB), LienVietPostBank (LPB), SeABank, SHB, VIB, and TPBank (TPB) hold customer deposits and issue securities valued from over 100,000 billion VND to more than 400,000 billion VND In contrast, other banks have mobilized less than 100,000 billion VND in the past year, highlighting disparities in market size and deposit figures.
Table 2.2 Capital mobilization of banks in 2019 (Source: Ai, 2020)
Capital mobilization of banks annually 2019 Unit: billion dong, %
2.2.2 Analysis of capital mobilization structure
2.2.2.1 Analysis of capital mobilization structure by customer
Figure 2.3 Structure of mobilized capital by customers of BIDV in the period
2015 - 2019 Source: BIDV's annual report for the years 2015 - 2019
Table 2.3 Structure of mobilized capital by customers of BIDV in the period of
Plan for 2019 at Decree 395/2019/NQ- DHDCD
Mobilizing capital from organizations and people
Mobilizing capital from financial institutions
Residents (%) Financial regulations (%) Economical organization (%)
Funds mobilized from the population and economic organizations constitute a significant portion of BIDV's total capital, with over 50% coming from these sources Despite high capital costs and intense competition among banks, BIDV has experienced strong growth, with annual growth targets rising from 59% in 2016 to 76% in 2017, and reaching 78% in 2018-2019 This increase in capital mobilization reflects the bank's effective capital structure and its ability to adapt to credit growth demands by sourcing funds from residents and businesses.
Although it has switched to commercial banking activities since 1995, BIDV's retail activities have not yet received due attention Therefore, in the period
Between 2009 and 2016, BIDV primarily focused on wholesale banking activities, with the bank’s total capital mobilization reaching VND 347,807 billion, accounting for 37% of the system’s total mobilized capital in 2016 Recognizing that commercial banking is a vital and core activity, BIDV has emphasized its importance as a foundation for sustainable growth, aligning with global development trends both in Vietnam and internationally.
In October and November 2019, BIDV hosted a retail banking conference, signifying a milestone in standardizing banking operations across the entire system Additionally, on December 21, 2009, the bank issued Resolution No 1235/NQ-HĐQT to establish a solid foundation for sustainable growth, focusing particularly on capital mobilization and enhancing overall business performance.
Between 2010 and 2012, BIDV implemented a comprehensive motivation mechanism to stimulate retail banking activities across its entire system This initiative was supported by guiding documents, including Official Letter No 2989/CV-TC1 dated June 22, 2010, and Official Letter No 5075/CV-NHBL1 issued on October 17, 2010, which outlined strategic directives to enhance retail banking growth and customer engagement.
In 2010 and 2012, several official documents, including Circular No 2229/CV-NHBL1, No 1458/CV-ALCO3, Circular No 3631/CV-NHBL1, and Circular No 739A/CV-ALCO3, outlined the motivation mechanisms for retail banking activities and residential mobilization efforts These guidelines aim to encourage citizens' savings and deposits, successfully mobilizing capital reaching VND 721.625 billion by December 31, demonstrating effective strategies for capital mobilization in the banking sector.
2019, reaching 102% of the 2019 plan according to the target Growth of capital
Between 2015 and 2019, citizen mobilization efforts averaged a 34% annual growth rate Notably, the proportion of capital mobilized from citizens showed a consistent upward trend, rising from 37% in 2016 to 45% in 2017, then sharply increasing to 50% in 2018, and reaching 52% in 2019 This positive trend indicates growing citizen participation in capital mobilization over the years.
Figure 2.4: Total capital mobilized from retail and wholesale activities Source: BIDV's annual report for the years 2015-2019 (BIDV, 2019)
Table 2.3: Total mobilized capital from retail and wholesale activities (BIDV, 2019)
Plan for 2019 at Decree 395/2019/NQ- DHDCD
Huy động từ hoạt động bán lẻ (Tỷ đồng) Huy động từ hoạt động bán buôn (Tỷ đồng)
% tăng của hoạt động bán lẻ (%)
% tăng của ngân hàng bán buôn (%)
Mobilized from Mobilization from retail activities (billion dong) Mobilization from wholesale activities (billion dong)
Since 2015, traditional wholesale activities have seen a decline in focus, yet capital mobilization remains a key activity, attracting deposits from external financial institutions In 2018, the proportion of capital mobilized from financial institutions involved in wholesale activities slightly decreased to 63% of the total mobilized capital, indicating a shift in the sector's funding sources.
In 2019, residential capital mobilization through retail activities reached 64%, driven by a high growth rate This growth in total residential capital mobilization outpaced that of financial institutions, as retail sector contributions increased faster than wholesale activities from financial institutions.
Between 2015 and 2019, the challenging economic conditions led to numerous mergers and acquisitions among financial institutions, resulting in several bank bankruptcies and a decline in deposit levels at BIDV The peak of these financial challenges occurred in 2011 when inflation surged to 18.13%, triggering an intense interest rate competition among commercial banks This fierce competition, driven by liquidity shortages, caused banks to significantly increase their mobilized funds from banking activities Additionally, wholesale trade declined by 8% compared to 2010, reflecting broader economic impacts during this period.
In the later period, the State Bank of Vietnam implemented policies to control inflation and support liquidity for commercial banks, leading to a decrease in interest rates for both deposits and loans This reduction enabled businesses to access capital at lower costs, thereby fostering production and business activities Consequently, the total capital mobilized from wholesale activities resumed growth, increasing by 15% in 2015 and 8% in 2016.
In 2013, Vietnam's government continued implementing resolutions 01/NQ-CP and 02/NQ-CP to address challenges in production and business, support the market, and promote economic restructuring During this period, interest rates decreased, leading to increased lending and capital mobilization activities, which signal positive liquidity conditions for the commercial banking system, including BIDV However, this also resulted in excess capital within the banking sector, highlighting the need for effective capital management and strategic growth.
Evaluation of capital mobilization activities at BIDV
Funds mobilized from residents and economic organizations accounted for a large proportion of the total capital, accounting for 49% in 2015 and increased continuously to 78% in 2019
Between 2015 and 2019, retail activity capital mobilization experienced a slight decline in 2018 but overall increased significantly from 231.879 billion VND in 2015 to 381.284 billion VND in 2019, indicating steady growth in retail investment Meanwhile, capital mobilized from wholesale activities steadily grew throughout this period, reaching 558.701 billion VND in 2019, reflecting sustained expansion in wholesale sector funding.
The proportion of capital mobilization in local currency accounts for a high
Domestic currency capital consistently accounts for over 80% of the total capital in the capital structure, demonstrating a stable and safe financial environment Maintaining a high proportion of local currency capital enhances safety and stability, as domestic currency is less exposed to exchange rate risks compared to foreign currency capital This balance reflects prudent financial management, emphasizing the safety and reliability of the company's capital base.
Medium and long-term mobilized capital consistently represents over 50% of total mobilized capital, which is advantageous due to its lower cost and the bank's ability to make longer-term investments This strategic capital allocation enhances financial stability and supports sustainable growth Utilizing predominantly medium and long-term funds allows banks to optimize investment returns while minimizing refinancing risk, ensuring a stronger and more resilient financial position.
The ratio of capital to mobilized capital has increased in the period 2015-
2019 from 0,7 in 2015 to 0,84 in 2019 This shows that more and more mobilized capital of the Bank is used to serve the credit needs
BIDV’s impressive results stem from its proactive compliance with the State Bank’s monetary policies and prompt implementation strategies The bank has effectively reduced deposit interest rates by adopting a flexible approach that aligns with market fluctuations, thereby lowering capital costs amidst surplus liquidity Consistently managing interest rates in harmony with the local market, BIDV upholds the principles upheld by state-owned commercial banks, while also screening and restructuring terms to maintain a stable customer base.
BIDV is highly praised by customers for its modern banking equipment and competitive, flexible interest rates, ensuring a seamless banking experience As a longstanding and reputable commercial bank with a nationwide network of branches and transaction offices, BIDV has built a strong foundation for growth These achievements position BIDV to evolve into a professional, efficient commercial bank that operates effectively alongside leading regional and global banks.
Excess capital in the financial system can hinder overall efficiency, as seen in 2016 when market liquidity was high During this period, BIDV experienced rapid growth in deposits, but credit growth lagged behind projections This surplus of available capital led to a prolonged period of low returns, negatively impacting the bank's profitability and overall financial performance.
The bank maintains a strong capital efficiency with an average excess capital of VND 10,000 billion above the SBV's minimum requirement Despite an average deposit interest rate of 8.12% per year, these funds can only be invested in the interbank market, which offers an average interest rate of 3.1% per year Alternatively, investing in bills with a 7.63% interest rate impacts the bank's business performance by approximately VND 140 billion.
BIDV boasts strong financial capacity, high business efficiency, and competitive strength within the Vietnamese commercial banking sector However, when compared to regional counterparts, its overall scale remains modest Transparency in banking activities is an area for improvement, as the bank's information disclosure mechanisms and accounting systems still fall short of international standards Addressing these gaps is essential for enhancing BIDV's competitiveness and aligning its practices with global best practices.
Unhealthy competition among commercial banks undermines cooperation and violates banking discipline, policies, and laws Profit pursuit often overrides the importance of ensuring business safety, leading to violations of monetary and credit regulations This competition is primarily based on interest rates, neglecting the crucial aspect of service quality Additionally, weak governance and low business ethics in the banking sector escalate operational risks and legal violations, threatening the stability and integrity of the financial industry.
The financial infrastructure in Vietnam has not effectively supported the safety and stability of commercial banks nationwide, including BIDV The legal environment for banking operations remains inadequate and inconsistent, hindering sector development Additionally, the application of information technology within the banking system is still limited, creating a significant gap compared to regional and global standards, and failing to meet the demands of technological advancement Moreover, the interbank money market remains underdeveloped, and the credit and insurance information systems are still insufficient, impacting overall financial security and efficiency.
The capital mobilization strategy remains concentrated on a few large clients, with five major customers—Social Insurance, VDB, Viettel, SCIC, and Oil and Gas Group—accounting for 18% of total deposits in VND Notably, social insurance customers’ balances are steadily increasing, now totaling VND 27,675 billion, which represents 33% of financial capital deposits and 7.5% of the industry’s total deposits This high customer concentration poses liquidity risks for BIDV, especially if large withdrawals occur.
The current interest rate policy, which involves decreasing deposit interest rates while gradually increasing lending rates, poses significant challenges for BIDV This strategy may hinder the bank’s ability to effectively mobilize capital and weaken its competitiveness against other financial institutions in the market.
BIDV currently lacks product diversification in capital mobilization efforts, limiting its ability to attract funds from a broader customer base To sustain and increase mobilized capital, BIDV must target customers with diverse financial needs and purposes Additionally, expanding and diversifying the bank's products and services will enhance its capacity to attract new capital, ensuring long-term growth and stability.
The current customer care policy lacks effective criteria for segmenting clients, resulting in insufficient personalized service VIP and VVIP customers are not provided with tailored care programs, which limits the potential for maximizing profitability for the bank Improving customer segmentation and establishing specialized care regimes for high-value clients are essential steps to enhance customer satisfaction and increase bank profits.
The non-interest cost of capital mobilization is increasing, driven by rising expenses related to interest payments, administrative costs, printing and issuance fees, marketing efforts, product development, and human resources These costs have grown higher than initially expected, making the overall expense of raising capital more burdensome for organizations.