Analysis of corporate governance issues case studies at asia commercial joint stock bank as of 2018

NATIONAL ECONOMICS UNIVERSITY CORPORATE GOVERNANCE Analysis of corporate governance issues Case studies at Asia Commercial Joint Stock Bank as of 2018 Members of group Nguyễn Ngọc Long – 11172881 Ng[.]

NATIONAL ECONOMICS UNIVERSITY

CORPORATE GOVERNANCE

Analysis of corporate governance issues - Case studies at Asia

Commercial Joint Stock Bank as of 2018

Members of group:

Nguyễn Ngọc Long – 11172881Nguyễn Việt Hoàng - 11171823 Nguyễn Trung Hiếu - 11171679

Đào Huy Anh - 11170060

Đào Quốc Huy - 11172081

Nguyễn Phương Chi - 11170650

Class: Quản Trị Doanh Nghiệp CLC K59

Faculty: AEP

Lecturer: TS Đào Thanh Tùng

CHAPTER I: INTRODUCTION 1

1.1 General information, formation and development process 1

1.1.1 General information 1

1.1.2 The process of formation and development 2

1.1.3 Growth charts 5

1.2 Business scope and network 7

1.2.1 Business scope 7

1.2.2 Network 8

1.3 Development strategy 8

1.4 The situation of implementing strategic projects in recent years 8

CHAPTERII: OWNERSHIP STRUCTURE OF THECOMPANY 9

2.1 The General Meeting of Shareholders 9

2.2 The Board of Directors 10

2.3 Supervisory Board 10

2.4 General manager 11

2.5 Current situation of Asia Commercial Joint Stock Bank 12

2.6 Comparing with the theory of corporate governance and giving evaluation 15 CHAPTER III THE ROLE OF THE SHAREHOLDERS 17

3.1 Specific shareholder rights 17

3.2 The Protection of shareholder rights 19

3.3 Responsibilities of shareholders 19

3.4 Current and evaluate situation 20

CHAPTER IV: INFORMATION DISCLOSURE AND TRANSPARENCY 22

4.1 ACB's regulations on information disclosure and transparency 22

4.2Actual situation of information disclosure and transparency 22

4.3 Evaluation of information disclosure and transparency 25

CHAPTER V: BOARD STRUCTURE AND ROLE OF THE BOARD OF

DIRECTORS 26

5.1 ACB's regulations on the Board of Directors 26

5.2 Practical information about the Board of Directors 27

5.3 Evaluate issues related to BoD 31

CHAPTER VI: ROLE OF STAKEHOLDERS 32

6.1 Interal stakeholders 32

6.2 External Stakeholders 33

6.3 Assessing the situation 35

CHAPTER VII: CONCLUSION 36

Table lists and charts

Chart 1.1: Total assets over the years

Chart 1.2: Total deposits over the years

Chart 1.3: Total outstanding loans

Chart 1.4: Total pre-tax profit

Table 2.1: Shareholding structure major and minor shareholdersTable 2.2: Major foreign shareholders

Table 2.3: Some lists of other shareholders

Table 5.1: The list of Board of Directors

This exercise is developed based on the process of learning andanalyzing corporate governance issues - Case studies at Asia Commercial

Joint Stock Bank as of 2018 Based on the "CG manual for Vietnam-second

edition "and "OECD Principles of Corporate Governance", and at the same

time as the situation of ACB such as annual reports, financial statements,and regulations of the bank in 2016, 2017, 2018.The team members gainedbetter understanding of ownership structure of the company, the role of theshareholders, actual situation of information disclosure and transparency,board structure and role of the board of directors, role of stakeholders Thisexercise may have many shortcomings, we are looking forward to yourcomment!

CHAPTER I: INTRODUCTION

1.1 General information, formation and development process

1.1.1 General information

• The bank’s name:

- Full name in Vietnamese: Ngân hàng thương mại cổ phần Á Châu

- Abbreviated name in Vietnamese: Ngân hàng Á Châu

- Full name in English: Asia Commercial Joint Stock Bank

- Abbreviated name in English: ACB

• Business Registration Certificate No.: 0301452948

- Date of first registration: 19 May 1993

- The thirty-three registration: 30 November 2018

• Chartered capital: 12,885,877,380,000 VND (by words: Twelve trillioneight hundred and eighty-five billion eight hundred and seventy-sevenmillion three hundred and eighty thousand Vietnam Dong)

• Address: 442 Nguyen Thi Minh Khai Street, Ward 5, District 3, Ho ChiMinh City, Vietnam

1.1.2 The process of formation and development

- Asia Commercial Joint-Stock Bank (ACB) was established under theBusiness License No 0032/NH-GP dated on 24 April 1993 by the State Bank ofVietnam (SBV) and Establishment Permit No 533/GP-UB dated on 13 May 1993

by the People’s Committee of Ho Chi Minh City ACB started the operations on 04June 1993

- ACB was listed on Hanoi Securities Trading Center (now re-named asHanoi Stock Exchange – HNX) pursuant to Decision No 21/QĐ-TTGDHN on 31October 2006 The first transaction date was 21 November 2006

- Development milestones:

 1993 – 1995:

+ Embryonic stage of development

+Targeted segments included households and private SMEs

+ Rearranged the organizational structure of Headquarters in order tofacilitate business and support activities

+ Established ACB Securities Company (ACBS)

 2001- 2005:

+Adopted the ISO 9001:2000 quality management system andregistered for recognition of (i) deposit taking, (ii) short- and long-term

lending, (iii) trade services, and (iv) human resource processes at theHeadquarters.

+ Carried out the second phase of the IT modernization program,including (i) server upgrading, (ii) replacement of the bankcard transactionprocessing software with one compatible with the core banking platform,and (iii) continued ATM installation

 2006- 2010:

+ took part in the Hanoi Stock Exchange

+ Rapid expansion of the branch network: 223 oces were put intooperation, a leap from 58 oces in 2005 to 281 oces in 2010

+ Established ACB Leasing (ACBL)

+ Issued 10 million shares with par value of 100 billion VND, withthe proceeds of more than 1,800 billion VND (2007); and increased itschartered capital to 6,355 billion VND (2008)

 2011- 2015:

+ The “Strategic Directions for 2011 to 2015 and the Vision to 2020”was issued One focus was the transformation of the bank’s corporategovernance practices, in compliance with Vietnamese rules and regulations,and the application of international best practices

+ The August incident in 2012 brought a serious impact on variousbank activities, especially on gold deposit taking and gold trading activities.The bank took quick action in response to the spike in withdrawals that tooplace in the last week of August and was able to recover all of the cashdeposits relatively quickly The bank then took drastic measusres to cut costs

in the second half of the year

+ In 2013, although the business results did not meet expectation,

ACB achieved positivegrowth rates in terms of deposit taking (18%) andlending (15%) Bad debt was kept under 3% ACB managed to betterarrange its personnel and cut headcounts ACB began implementing therestructuring roadmap (2013 – 2015), as stipulated by the SBV

+ 2014, ACB upgraded the old core banking platform, which had

been in use for 14 years, to a new version called DNA ACB completed thefirst phase of its corporate identity transformation, introducing new brandingand renovating the facades of branches, sub-branches, and ATMs A softlaunch was conducted on January 05, 2015 ACB developed a riskmanagement framework to fully comply with new regulations regarding toprudential ratios ACB’s branches grew in size and performance improved

 2016 – 2018:

+ In 2016, ACB completed as per schedule multiple items of

technology projects, including the changing of ACBS’s core system;improvement in IT applications such as CLMS, CRM, ACMS, ELM, PASS

to support the streamlining of business processes; upgrading ATM systemand ACB website to increase utility and customer payment service, etc.Furthermore, ACB continued to complete strategic plan including (i)transaction banking, (ii) privilege banking, (iii) business process re-engineering - ACMS (phase 1), etc in order to improve competitiveness.And particularly, during the year ACB successfully restructured theorganization and operational model, with increased performance of itsbranches/ sub-branches and more streamlined organization of itsHeadquarters units

+ In 2018, ACB ensured the sustainability of consumer banking and

SME controlled the credit quality and safe operation effectively The credit

growth of these two areas was outstanding in conjunction with the ALCO’sdirection The deposit was improved, that leaded to the increase of CASAfrom 15.8% to 16.7% the released cards were saled more than the previousyear The Bank issued 4.400 billion VND of AAA bonds with 3-year and10-year term Debt was settled and collected, therefore the income from debtsettlement was fourfold higher than 2017 ACB has gradually built theplatforms, continued to enhance its operation capability for thetransformation and development in the period of 2019 – 2024.

1.1.3 Growth charts.

 Here is a summary of the achievements over the years:

Chart 1.1: Total assets over the years

Chart 1.2: Total deposits over the years

Chart 1.3: Total outstanding loans

Chart 1.4: Total pre-tax profit

1.2 Business scope and network

1.2.1 Business scope

The main business activities of ACB and subsidiaries is to mobilise short,medium and long-term funds in the form of term deposits, demand deposits; toreceive entrusted investment and development funds from domestic creditinstitutions; to borrow from other financial institutions; to grant short, medium andlong-term loans; to discount commercial papers, bonds and other valuable papers;

to contribute capital and to invest in joint-ventures in accordance with the law; toprovide settlement services to customers; to trade foreign currencies, gold; toprovide trade finance services; to mobilise overseas funds and to perform othertype of services when dealing with overseas counterparties in accordance with theactivities and fiduciary activities; insurance agent services; to provide financialleasing; to trade securities; to provide consultancy services for securitiesinvestment; to provide securities deposit services, corporate finance consultancyservices and underwriting services; to provide investment fund and assetmanagement services, and to provide other banking services

1.2.2 Network

In 2018, four new sub-branches oces were set up in 2018 by ACB, which areadded to the total 358 branches and sub-branches in 47 provinces and citiesnationwide ACB’s credit market share increased by 3 BPS YOY and it wasestimated to reach over 3%, and positively improved in Ho Chi Minh City and theNorth region Ho Chi Minh City, Southeast, Northeast and Mekong Delta areconsidered as the Bank’s key markets

1.3 Development strategy

Financial highlights:

• Total assets targeted to grow by 15%

• Outstanding loans targeted to grow between 13% and 15%

(depending on the credit allocation by the State Bank of Vietnam)

• Customer deposit targeted to grow by 15%

• Non-performing loan ratio targeted to be under 2%

•The Group’s profit before tax targeted to grow between 12% and 20%

1.4 The situation of implementing strategic projects in recent years

- Debt management system project (DMS)

DMS is a solution to manage the debt settlement process at ACB from when

a loan is disbursed until it is fully repaid DMS helps to monitor and control theevolution of debts in different categories, overdue debts, and bad debts It is alsohelpful when making plans to prevent the occurrence of overdue debt or to timelysettle the debts DMS started in April 2018 and finished going in November 2018

- ACB customer relationship management system (ACMS)

- Go paperless project (Administrative procedure improvement and paperusing reduction)

- ACB Mobile Banking Application

CHAPTERII: OWNERSHIP STRUCTURE OF THECOMPANY

The key organizations of the Bank consist of the General Meeting ofShareholders, the Board of Directors, the Supervisory Board, and the ChiefExecutive Ocer, as it was stipulated by Article 32.1 of the Law on CreditInstitutions 2010 and Law

The company's charter provides for these agencies as follows:

2.1 The General Meeting of Shareholders

 Article 27 of ACB Charter 2018 indicates:

1 The General Meeting of Shareholders are the Bank’s highest authority andall shareholders named in the list of registered shareholders have the right toattend The annual General Meeting of Shareholders is held at least once ayear and must be held annually in the last four months of the financial year

2 The annual General Meeting of Shareholders is convened and held by theBoard of Directors in Vietnam The Annual General Meeting ofShareholders decides the issues within the duties and powers prescribed bylaw and the Charter, especially through the annual financial statements andfinancial budget for the next financial year

 Article 29 of ACB Charter 2018 indicates:

The General Meeting of Shareholders has powers and duties such as:

Through the bank development orientation; amend and supplement thebank's charter; to approve the regulations on organization and operation of theBoard of Directors, Supervisory Board; decide on remuneration and bonus levels;decide on the organizational structure and executive apparatus of the Bank;changing charter capital, offering shares; through annual financial statements,profit distribution plan; Establishment of subsidiaries; decide on solutions toovercome major fluctuations of the Bank…

 At the same time, there are other provisions of the Bank's Charter

related to the General Meeting of Shareholders such as:

Article 30 to attend the General Meeting of Shareholders, Article 31 on theauthorization to attend the General Meeting of Shareholders, Article 32 on conveneThe General Meeting of Shareholders, articles 33,34,35 about approving andrejecting the decision of The General Meeting of Shareholders

2.2 The Board of Directors

 We will cover it in chapter 5

2.3 Supervisory Board

 Article 27 of ACB Charter 2018 indicates:

The Supervisory Board is responsible for checking the financial activities,supervising the observance of the accounting regime, the safety of the Bank'soperations, performing the internal audit of the Bank's activities in each period,each field to accurately assess business operations and financial status of the Bank

 Article 56 regulates the duties and powers of the Supervisory Board

such as:

Supervising the compliance with laws and the Bank's Charter in themanagement and administration of the Bank; be responsible to the GeneralMeeting of Shareholders for performing the assigned tasks; perform internal audit

functions; evaluation of financial statements; promptly notify the Board ofDirectors when detecting violations, convene an extraordinary General Meeting ofShareholders in case the Board of Directors seriously violates the provisions of theLaw CTCTD or beyond its assigned competence.

 At the same time, there are other provisions of the Bank's Charter

related to the Supervisory Board such as:

Article 38 on the loss of membership of the Supervisory Board, Article 39

on immunity and dismissal of the Supervisory Board, Article 40 on special casesfor the Supervisory Board;Article 57 on the rights and obligations of the Head ofthe Supervisory Board and members of the Supervisory Board; Article 58 onreplacement of members of the Supervisory Board; Article 59 on meetings of theSupervisory Board

2.4 General manager

 Article 27 of ACB Charter 2018 indicates:

The General Director is responsible to the Board of Directors, manages dailyactivities according to the tasks and powers in accordance with the requirements ofthe law

 Article 54 regulates the duties and powers of the General Director

effective internal control system; report the organization's business results; appointand dismiss management capabilities; recruit workers

 At the same time, there are other provisions of the Bank's Charter

related to the General Director such as:

Article 53 on contamination, dismissal and removal of the General Director; Article 52 regarding the general director

2.5 Current situation of Asia Commercial Joint Stock Bank

Table 2.1: Shareholding structure major and minor shareholders

Majorshareholders

Minorshareholders

Pursuant to Article 4.26 of the Law on Credit Institutions 2010, a

“major shareholder of a shareholding credit institution means anyshareholder directly or indirectly owning 5 percent or more of the votingshareholding of such shareholding credit institution.”

 Major foreign shareholders:

Major foreign shareholders with more than 5% of shareholdingproportion include the following:

1 Major shareholders

DragonFinancial Holdings Limited Investment 88,500,356

(6.87%)First Burns Investments Limited Investment 51,529,024

(4.00%)Asia Reach Investments Limited Investment 41,277,269

(3.20%)

2 Alp Asia Finance (Vietnam)Limited (Shareholders with direct ownership via

Sather Gate Investments Limited Investment 64,347,226

(4.99%)Whistler Investments Limited Investment 64,347,226

(4.99%)

Table 2.2: Major foreign shareholders

 Some lists of other shareholders:

Share owning ratio at term end

1 Tran Hung Huy Chair of Board of

7 Tran Minh Hoang 16,007,648 1.24

8 Dang Thu Ha Deputy Director of Ho

Chi Minh Branch

13,204,009 1.02

9 Dang Thi Thu

Van

Director of Go VapTransaction Office

410,668 0.03

12 Huynh Nghia

Hiep

Chief of SupervisoryBoard

248,487 0.02

Supervisory Board

69,139 0.01

1 Do Minh Toan General Director 491,962 0.04

Table 2.3: Some lists of other shareholders

2.6 Comparing with the theory of corporate governance and giving

- Shares are widely help and concentrated shareholding is non-existent

- Organizational structurehas complied with the Law on Enterprises, CGRegulations and Model Charter respectively for a listed company: GMS,

Board of Directors, General Dirctor, Supervisory Board, Excutive Board,External Auditor, Corporate Secretary.

- Legal and regulatory practices affect public governance practicesACB Bank

is in compliance with the laws and regulations enforcement

- Ownership structure of company complies with The OECD Principles ofCorporate Governance such as: The corporate governance framework haspromoted market transparency and efficiency, be in compliance with thelaw, and clearly define responsibilities among supervisory, regulatory andenforcement agencies

- The supervisory, regulatory and enforcement agencies have integrity,sufficient authority, and resources to fulfill their functions professionally andobjectively Moreover, the decisions of these agenciesbe timely, transparentand fully explained

- Tasks, roles, modes of operation of GMS, Board of Directors, GeneralDirctor, Supervisory Board, Excutive Board, External Auditor, CorporateSecretary are specified in the charter, in accordance with OECD's corporategovernance principles

- ACB is trying to balance efficiency and control

- Statistics on business results show that ACB is operating very effectively,

2016 Total pre-tax profit was 1667 (VND billion), in 2017 increased to 2656(VND billion) and especially in 2018 increased sharply to 6389 (VNDbillion) Statistics on total assets, credit activities, funding activities,investment activities, revenue, return on assets, return on equity, and earningper share are all very good

- The 2012 scandal seriously affected the company's business operations,revealing gaps in corporate governance Since then, ABC Bank has

increasingly strengthened its apparatus and legal framework, therebyimproving business efficiency.

CHAPTER III THE ROLE OF THE SHAREHOLDERS

The General Meeting of Shareholders is the Bank’s highest authority(Article 27.1 of ACB Charter 2018) Shareholders are very important to the Bank.Roles, powers, responsibilities and issues related to shareholders are expressed asfollows:

3.1 Specific shareholder rights

Article 25 of ACB Charter 2018

 The right to vote Common Shares:

- The shareholders have the right to attend and vote on all issues of theGeneral Meeting of Shareholders, appoint and nominate for a member of theboard of directors and members of the Control Board

- Shareholders own more than 10% of common shares for 6 consecutivemonths (nominated people to the Board of Directors and the Control Board)

 The right to receive information about the company

- Shareholders received information about banking operations; Shareholdersreviewed, looked up, extracted or copied bank charter, minutes book ofmeeting and resolutions of general meeting of shareholders

 The right to freely transfer shares:

- Shareholders be free to transfer shares that have been paid in full inaccordance with this Charter, in accordance with state bank regulations, ofthe law

 Pre-Emptive Rights