Credit risk and solutions to prevent and minimize credit risk at bank for development and investment of vietnam dong do branch,graduation thesis

FACULTY OF FOREIGN LANGUAGES ------ GRADUATION THESIS CREDIT RISK AND SOLUTIONS TO PREVENT AND MINIMIZE CREDIT RISK AT BANK FOR DEVELOPMENT AND INVESTMENT OF VIETNAM – DONG DO BR

FACULTY OF FOREIGN LANGUAGES

- -

GRADUATION THESIS

CREDIT RISK AND SOLUTIONS TO PREVENT AND MINIMIZE CREDIT RISK AT BANK FOR DEVELOPMENT AND INVESTMENT

OF VIETNAM – DONG DO BRANCH

Student’s name : Nguyen Do Khanh Linh Student’s ID : 15A7510113

Supervisor : Ngo Tung Anh (MA, MBA)

HANOI, MAY 2016

FACULTY OF FOREIGN LANGUAGES

- -

GRADUATION THESIS

CREDIT RISK AND SOLUTIONS TO PREVENT AND MINIMIZE CREDIT RISK AT BANK FOR DEVELOPMENT AND INVESTMENT

OF VIETNAM – DONG DO BRANCH

Student’s name : Nguyen Do Khanh Linh Student’s ID : 15A7510113

Supervisor : Ngo Tung Anh (MA, MBA)

HANOI, MAY 2016

DECLARATION

I declare that this thesis is originally written by me and has not been previously submitted for my degree or examination in any other university All the sources I have reproduced from other person’s work has been acknowledged by references

Name: Nguyen Do Khanh Linh

Signature: ……… Date: … /… /2016

ACKNOWLEDGEMENTS

First of all, I would like to express my special thanks to my beloved instructor

as well as supervisor, MA Ngo Tung Anh for his constructive support, helpful feedbacks and great inspiration In spite of his conflict schedule, he always provided enthusiastic instructions and corrections through my work

I also would like to thank all lecturers at Banking Academy of Vietnam, especially those of the Faculty of Foreign Languages Without their help and all the valuable lessons they taught me, my thesis would not have been finished

In addition, I wish to send the same appreciations to staff of BIDV Dong Do Branch for creating favorable conditions and guiding me during my internship time Last but not least, I am very grateful to my family and friends, for their encouragement and constant supports

ABSTRACT

The trend of liberalization and economic integration have created favorable conditions for the development of banking sector development as well as some risky factors In the banking system, credit activity has played an important role which provides main income for commercial banks Credit operation, however, is one of the riskiest activity and credit risk is also one of the most general risks that commercial banks have to face Especially, after many events strongly affected the banking sector due to credit risk, it is urgent to take appropriate preventive

measures into account Hence, researching the topic “Credit risk and solutions to

prevent and minimize credit risk at Bank for Development and Investment of Vietnam - Dong Do Branch” is essential to boost the growth of credit activity and

the safety in the context of integration The paper has analyzed credit situation and indicated drawbacks and causes in credit operation of the branch beside giving solutions to avoid risk In the future, the author hopes this study could make small contributions to credit’s growth As there has been limited time and knowledge of the author, this thesis could exist some shortcomings Therefore, for further study, it would be better to extend the work in other branches of Bank for Development and Investment of Vietnam

LIST OF ABBREVIATIONS

ADB Asian Development Bank

ATM Automatic Machine Teller

BIDV Bank for Investment and Development of Vietnam

CIC Credit Center Information

Eximbank Vietnam Export Import Commercial Joint – Stock Bank

GDP Gross Domestic Product

IFRS International Financial Reporting Standards

IMF International Monetary of Fund

ISO International Organization for Standardization

JBJC Japan Bank for International Cooperation

NIB Nordic Investment Bank

POS Point of Sale

ROA Return on Assets

ROE Return on Equity

SBV State Bank of Vietnam

VALC Vietnam Aircraft Leasing Company

Vietcombank Joint Stock Commercial Bank for Foreign Trade of Vietnam VND Vietnam dong

LIST OF FIGURES AND TABLES List of figures

Figure 2.1 Status of mobilizing capitals 14

Figure 2.2 The business result of Dong Do Branch 18

Figure 2.3 The situation of outstanding loans in terms of maturity 21

Figure 2.4 The process of credit scoring and customer ratings 25

List of tables Table 2.1 Analysis of total mobilized capital from 2012 to 2015 16

Table 2.2 Outstanding loans at the branch 19

Table 2.3 The status of overdue loans at Dong Do Branch 22

Table 2.4 Overdue debts and bad debts 23

Table 2.5 Provisions at the branch 24

Table 2.6 Criteria for scoring business credit 26

Table 2.7 Scale to grade the size of enterprises 27

TABLE OF CONTENTS

DECLARATION i

ACKNOWLEDGEMENTS ii

ABSTRACT iii

LIST OF ABBREVIATIONS iv

LIST OF FIGURES AND TABLES v

TABLE OF CONTENTS vi

INTRODUCTION 1

CHAPTER 1: THEORETICAL BACKGROUND 3

1.1 DEFINITION AND FEATURES OF CREDIT OPERATION IN COMMERCIAL BANKS 3

1.1.1 Definition 3

1.1.2 Features of credit 3

1.2 CREDIT RISK AND METHODS TO CONTROL CREDIT RISK IN COMMERCIAL BANKS 4

1.2.1.Credit risk in commercial banks 4

1.2.2 Some indicators to measure credit risk 6

1.2.3 Solutions to minimize and prevent credit risk 8

1.3 SUMMARY 11

CHAPTER 2: THE REALITY OF CREDIT RISK AT BIDV - DONG DO BRANCH, 2012 - 2015 12

2.1 INTRODUCTION OF BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM – DONG DO BRANCH 12

2.1.1 Brief introduction of Bank for Investment and Development of Vietnam (BIDV) 12

2.1.2 Overview of the establishment and development of Bank for Investment and Development of Vietnam – Dong Do Branch 13

2.1.3 Organizational structure 13

2.2 SITUATION OF CREDIT OPERATION AT BIDV – DONG DO BRANCH 14

2.2.1 Raising capital activities 14

2.2.2 General assessment of the business results of BIDV - Dong Do branch 18

2.2.3 Credit operation 19

2.3 SITUATION OF CREDIT RISK AT BIDV– DONG DO BRANCH 22

2.3.1 Overdue loans 22

2.3.2 Bad debts 22

2.3.3 Provisions deduction and risk solvency activities 23

2.4 CREDIT RISK MANAGEMENT ASSESSMENT 24

2.4.1 Measures imposed to prevent and minimize credit risk 24

2.4.2 Drawbacks 29

2.4.3 Causes of credit risks 30

2.5 SUMMARY 32

CHAPTER 3: SOLUTIONS AND RECOMMENDATIONS 34

3.1 ORIENTATION FOR THE DEVELOPMENT OF BIDV DONG DO BRANCH 34

3.1.1 General development orientation of BIDV 34

3.1.2 Oriented strategy of business activities at Dong Do Branch 34

3.2 SOLUTIONS TO MINIMIZE AND PREVENT CREDIT RISKS AT BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM – DONG DO BRANCH 36

3.2.1 Improving credit evaluation before granting credit 36

3.2.2 Enhancing credit supervision during and after issuing credit 37

3.2.3 Improving credit policy 37

3.2.4 Developing information system 38

3.2.5 Dispersing risks by diversification measures 39

3.2.6 Enhancing professional skills and moral qualities of staff related to credit operations 39

3.3 RECOMMENDATIONS 40

3.3.1 Recommendations to the Government 40

3.3.2 Recommendations to the State Bank of Vietnam 41 3.3.3 Recommendations to the Headquarter of Bank for Investment and

Development of Vietnam 43

3.4 SUMMARY 44

CONCLUSION 46

REFERENCES 48

INTRODUCTION

1 Rationale to the study

During the stage of integration, Vietnam's economy has been facing new opportunities as well as challenges It is obvious that banking system is playing a vital role as the biggest financial intermediary to implement centralized operations, redistribute monetary capital and also offer diversified services relating to other financial activities In Vietnam, the banking sector was formed early and has made active contributions to the process of building nation Furthermore, as a pioneer in the innovation process, banking system is a key component contributing significantly in the industrialization – modernization of the country

In banking activities, credit activity is an important leverage that brings mainly profits and determines the existence and development of commercial banks Besides, in the market economy, the risk is always associated with banking business For commercial banks, which are major suppliers of capital and banking services, the risk is always lurking at a higher level Despite its great advantages, credit operation is one of the riskiest activities causing unpredictable consequences which could even lead to bankruptcy Therefore, finding a way to minimize and prevent credit risk is becoming an increasingly urgent issue for every branch of each commercial bank in Vietnam

Stemming from that fact is essential, I have chosen the topic “Credit risk and

Solutions to prevent and minimize credit risk at Bank for Investment and Development of Vietnam – Dong Do Branch”

2 Objectives of the study

Firstly, the thesis is aimed at systematizing and clarifying the theoretical

issues of credit risk in banking activities

Secondly, the thesis pays attention to analyzing and assessing the reality of

credit risk in Bank for Investment and Development of Vietnam – Dong Do Branch

Thirdly, the thesis mentions providing solutions to minimize and prevent

credit risk in Bank for Investment and Development of Vietnam – Dong Do Branch

3 Scope of the study

Credit risk and other related issues from 2012 to 2015 at Bank for Investment and Development of Vietnam – Dong Do Branch

4 Methodology of the study

This thesis has used qualitative methods which are comparison, analysis, statistics, synthesis and dialectical materialism, the economic and commercial point

of view, graph illustrations

For this thesis, secondary data has been used

5 Significance of the study

The research will help commercial banks in realizing the causes of credit risk Therefore, they can apply appropriate measures to manage and also implement feasible solutions which researcher mentioned to control and reduce credit risk

6 Structural organization of the study

Apart from the Introduction and Conclusion, this thesis is dividied into three main chapters as follows:

Chapter 1: Theoretical background

Chapter 2: The reality of credit risk at BIDV - Dong Do Branch from 2012 to 2015 Chapter 3: Solutions and Recommendations

CHAPTER 1 THEORETICAL BACKGROUND

1.1 DEFINITION AND FEATURES OF CREDIT OPERATION IN COMMERCIAL BANKS

In terms of the function of banking systems, credit is assets transaction (currency or commodities) between lenders (banks or other financial institutions) and borrowers (individuals, enterprises and other entities) Particularly, lenders transfer assets to borrowers for their uses in a specified time under agreements, while borrowers have the responsibility of repaying unconditionally principal and interests at the maturity of payments

1.1.2 Features of credit

Firstly, credit is temporarily transferable relation The objects of this activity

are currencies and goods in the form of prolong payment in buying-selling relationship The nature of temporary transfer refers to the amount of time to use the value of these commodities It is the result of an agreement between partners involved in the transfer process to ensure the appropriate of idle time

Secondly, credit is reimbursable Borrowers must pay both principal and interest

on maturity date Interests, which are also called profits of banks, have to ensure that the amount of recent value is greater than the initial value This difference is the price paid for the temporary use of capital In other words, interests must be attractive enough so that owners may be willing to sacrifice the right to use it

Thirdly, credit relationship bases on trust between borrowers and lenders It is

obvious that this feature is a prerequisite to build a credit relationship Lenders believe that the capital will be reimbursed fully on due date, and borrowers also have belief in the ability to promote the efficiency of the loan

1.2 CREDIT RISK AND METHODS TO CONTROL CREDIT RISK IN COMMERCIAL BANKS

1.2.1 Credit risk in commercial banks

1.2.1.1 Definition of Credit risk

What is risk? According to Dennis G.Uyemura and Donald R Van Deventer,

risk is the volatility (standard deviation) of net cash flows of a business unit

Based on Article 2, Regulation No 493, Credit risks in the banking activities

of credit institutions (hereinafter referred to as risks) are potential losses that may arise in the banking activities of the credit institutions due to the failure of their customers to perform or their not being able to perform their obligations in accordance with their commitments

In general, credit risk is the risk of financial loss (directly or indirectly) that bank has to suffer from a borrower’s failure to repay the loan on maturity date or comply with contractual obligations for any reasons

1.2.1.2 Causes of credit risk

activities In case, corporations having business loans are at a loss and insolvent, the credit risk is expected to happen to banks In addition, when there are many changes

in legal systems and overlapping of legal documents, some individuals tend to take advantages of gaps in laws which cause moral hazard of loan officers

 Economic environment:

Economic cycles: Any fluctuations in the economy are manifested clearly in credit activity During prosperous period, the business of enterprises is conductive, thus the failure in repaying loans might be unable to happen Conversely, when the economy is in recession and having inflation, the poor ability to reimburse debts is projected to create credit risks

In case of over development, Central Bank is going to apply a tight monetary policy which increases market interests Consequently, spending more money to borrow capital obviously leads to an increase in financial cost Meanwhile, business’s profit decreases significantly; therefore, there are possibilities of credit risks occurred

 Individual customers:

The main resource to repay debts of individuals is their income There are some reasons causing credit risk:

- Unstable income

- Moral hazard such as wrong purpose to use loans, no intention to repay debts

- Frequent changes in jobs

- Unstable place of residents

b Internal causes:

Factors from bank are very important According to the International Monetary Fund (IMF), 50% of banks all over the world go bankrupt due to their poor management

Firstly, banks do not have strict policies and procedures for loans, effective

risk management process as well as analyzing customers’ profiles or rating credit risk to calculate the conditions and ability to repay Besides, these institutions are mainly focusing on profit without concentrating in credit conditions

Secondly, they lack information about the customer or credit information

reliability, timely and accuracy to analyze before granting credit Moreover, there is

no coordination with other agencies such as tax, customs to verify the financial information provided

Thirdly, checking and controlling activities are not performed usually As a result,

bankers cannot detect signs of risky loans and they might find it difficult to handle

Fourthly, the quality of loan officers is not qualified enough to manage

unpredicted issues and remuneration for bank staff is not satisfactory Due to weak technical and professional competence, loan officers not only have a lack of the ability to analyze scientifically the financial statements, but also forecast the trend

of market or cycle life of products

1.2.2 Some indicators to measure credit risk

To predict risk accurately, it is necessary to measure risk Risk measurement is the basis for banks to build reasonable credit policies and suitable interest rate policies for each period In order to perform this process, a system of risk for each type of asset and for each type of loan is made There are some indicators that are commonly used:

1.2.2.1 The ratio of overdue debt

According to Regulation 493, Overdue debt is a debt where a part or the

entire of its principal and /or interest has become overdue Obviously, the higher overdue debt is, the higher level of credit risk of banks is

Based on classification of debt from No 493/2005/QD-NHNN, overdue debt

is divided into 4 groups

Group 2 – Noted debts: the overdue loans less than 90 days

Group 3 – Substandard debts: loans overdue 90 to 180 days

Group 4 – Doubtful loans: overdue debt from 181 days to less than 360 days Group 5 – Irrecoverable debts: Debts are overdue for a period of more than

360 days

Overdue debt ratio

1.2.2.2 Non – performing loans ratio

Based on Regulation 493, bad debts are debts, which have been classified as

those in Groups 3, 4 and 5 as follows:

Group 3 (sub-standard debts) includes:

- Debts which are overdue for a period of 90 to 180 days;

- Debts with restructured repayment term, which are overdue for a period of less than 90 days under the restructured repayment period;

Group 4 (doubtful debts) includes:

- Debts, which are overdue for a period of 181 to 360 days;

- Debts with restructured repayment term, which are overdue for a period of

90 to 180 days under the restructured repayment period;

Group 5 (potentially irrecoverable debts) includes:

- Debts, which are overdue for a period of more than 360 days;

- Frozen debts pending settlement by the Government

- Debts with restructured repayment term, which are overdue for a period of more than 180 days under the restructured repayment period;

1.2.2.3 Risk limitation

This rate represents an index compared to bank's capital The index is calculated on the level of risk that the bank's capital can cover the losses incurred for each type of credit activity In Vietnam, this indicator is defined that a bank is not allowed to grant an amount of a loan which exceeds 15% of the bank's capital

Total value of risky assets

The ratio indicates that if there are 100 units of lending assets, how many assets are at risk

1.2.3 Solutions to minimize and prevent credit risk

1.2.3.1 Formulating reasonable credit policies

Credit policy sets aims, orientation for bank staff who work in loan and investment portfolio management A scientific policy can create conditions for banks to maintain their credit standards which avoid excessive risk and evaluate business opportunities properly There are some basic elements that are considered

in credit policies, namely:

- Balancing between profit and safety

- Defining strategies clearly: Banks commonly determine the percentage of loans in accordance with the object, the duration, geographical location to achieve the diversification as banks’ desire

- Determining the responsibilities of each department and staff involved in the process of making lending decisions: Credit policy should specify the responsibilities of the board of directors, functions of each division and department

- Providing credit criteria: A positive credit policy has to stipulate the conditions of the loans This is the first phase to decide the results of credit activities and the ability of customers’ repayment

- Establishing control methods: The schedule of controlling loans, reporting issues related to the bank managers should be regulated in credit policies

1.2.3.2 Transferring credit risk

One method to solve the problem of profit-risk which banks are using is transferring risks between banks There are various forms of this measure, which are listed as follows:

- Co-financing a loan: More than one bank grant loans for one customer with large capital requirement or risk

- Selling risk: The risk transfers to entities which can endure risks In the case

of high risk, banks are going to “sell” loan to bigger banks or other financial intermediaries After finishing transaction, commission fee is paid for them

- Purchasing insurance for loan: When not only encountering risky activities but also many advantages, traders can limit risks by transferring risk to other traders such as companies’ insurance with higher risk endurance

1.2.3.3 Credit rating

Credit rating is an official evaluation of creditworthiness of individuals or companies predicting the affordability to pay debts It includes testing data, analyzing records

Well – managed credit risk rating systems promote banks to categorize the risk

by level of risk corresponding to the causes This allows bank management and examiners to define more precisely the characteristics of loan portfolio, the probability of bad debts In common, the rating system considers financial status, the capacity of repayment, the present value and liquidity of assets, and other issues related to borrowers Specially, the most important factor is estimating the future cash flow of customers

In short, performing credit risk ratings periodically for customers and evaluating loans or collateral is necessary, so that banks are able to allocate reserves and adjust credit limits accordantly Moreover, if there is any abnormality of debts affecting to the ability to recover loan, banks can implement necessary measures to collect debts before maturity

re-1.2.3.4 Classifying assets and making provision

When credit risk occurs, commercial banks are expected to sell off collateral along with using backup funds (general or specific provisions) to offset the losses occurred

In general, banks classify assets into three groups as follows:

Sub – standard credit: the credit quality of customers decreased and banks find some signals of failure in repayment

Doubtful credit: Ability of great credit losses for banks

Loss credit: banks cannot recover both principal and interest

Risk provision is a source which offsets for potential losses and helps banks to avoid problems leading to bankruptcy Risk provision includes general provision and specific provision In Vietnam, the provision of each bank is regulated by the State Bank of Vietnam

1.2.3.5 Using collateral

Collateral is a secondary source which is used to offset the loan to borrowers failing to pay principals and interests By using collateral, banks are able to secure the repayment of loan and prevent unpredictable risks

Banks should pay attention to the following points when approving a collateral:

- The value of assets must be greater than guaranteed obligations Moreover, collateral is not only the second source of loan repayment, but also to raise awareness of customers to repay Hence, if the value of these assets is not valuable enough, borrowers may intend not to pay back

- Assets have to be available in markets in order to be sold in the future and the ability to convert assets into cash is high

- Lenders have the prior right to disposal assets with full basis legal

1.2.3.6 Making the analysis of corporate finance

For short-term lending activities, corporate financial analysis is considered as the effective tool for banks to identify and assess risks occurred for loans

When analyzing corporate finance, commercial banks carry out assessment of

three main items as follows:

- Analyzing main items on financial statements: This allows bank to identify the issues arising in enterprises; therefore, banks can forecast the future of a business entity

- Analyzing the main financial ratios: By establishing relationship between elements of the balance sheet and income statement of a company, bank clerks can examine financial strength or weakness of a business It is essential for loan staff to focus on analyzing the following financial ratios: efficiency of operations, products’ salability, profitability, liquidity solvency and financial leverage These factors determine whether firms are going into default or not

- Analyzing sale financial plans: Banks should attach special importance to evaluate the financial plans as well as the financial conditions of enterprises in the future Thus, identifying profitability, loan demand, repayment capability and financial status of a business can be easily done In particular, the feasibility of business plan is the most concerned issue that should be noted to prevent credit risks

1.3 SUMMARY

Credit risk is unavoidable in nature in banking activities Hence, banks need to find effective methods to control and prevent this inevitable risk Therefore, this is the premise for the study of chapter 1

Chapter 1 systemized theoretical issues which are credit and the basis of credit risk in commercial banks Firstly, this chapter illustrated the brief definitions of credit risk Additionally, it pointed out two factors causing credit risk which are external and internal factors In details, banks suffer credit risk not only from unpredictable events, political environment, economic environment, individuals and enterprises; but also from their own resources Moreover, there are some important indicators mentioned in this chapter to measure credit risk Finally, in order to minimize and prevent credit risks, six feasible solutions for banks were given and analyzed

These basic theories are essential for the author to do the research in chapter 2

CHAPTER 2 THE REALITY OF CREDIT RISK AT BIDV - DONG DO BRANCH,

2012 - 2015

2.1 INTRODUCTION OF BANK FOR INVESTMENT AND DEVELOPMENT

OF VIETNAM – DONG DO BRANCH

2.1.1 Brief introduction of Bank for Investment and Development of Vietnam (BIDV)

Full Name: Ngan hang TMCP Dau tu va Phat trien Viet Nam

International Transaction Name: Bank for Investment and Development of Vietnam

Address: BIDV Tower, 35 Hang Voi Street, Hoan Kiem District, Hanoi

As one of Vietnam’s oldest and largest financial intermediaries, BIDV has a long period of innovation from a state capital bank to a commercial bank BIDV has formidable experiments and is a leader in commercial banking which provides banking products for customers, insurance, securities and financial investment as well BIDV also serves as a financial leasing intermediary providing capital for large projects such as Vietnam Aircraft Leasing Company (VALC), Long Thanh International Airport Being built on the foundation of customers, the bank has the

largest enterprise-customer base among financial firms in Vietnam and is a reliable choice for top institutions such as WorldBank, ADB, JBJC, NIB … Along with that factor, millions of individual customers have been using retail services of BIDV BIDV is operated basing on a wide-range network including banking network with hundreds of branches, ATM, POS all over the country; non-banking network including: BIDV Securities Joint Stock Company (BSC), BIDV Insurance Corporation (BIC) and BIDV Financial Leasing Company (BLC); overseas representatives in Laos,

Russia and Cambodia and Joint venture Banks with these countries

2.1.2 Overview of the establishment and development of Bank for Investment and Development of Vietnam – Dong Do Branch

According to Decision No 191 /QD-HDQT, Bank for Investment and Development of Vietnam – Dong Do Branch was established in 2004 after being upgraded from Transaction Office 2 – Transaction Center 1 The branch is one of the pioneers focusing on developing retail banking services, providing utilities for customers, applying one door transaction model along with modern banking technologies The headquarter of Dong Do Branch is located at Eurowindow Building, 27 Tran Duy Hung Street It could be said that this is a prime location which is convenient for the branch to offer services to residents and enterprises from Hanoi as well as surrounding areas

After 12 years working constantly, the branch has served more than 63,000 customers from all economic sectors and improved its performance with large market share It has been chosen to be one of the very first branches implementing online services and international payments Currently, there are 187 well-trained employees and 7 transaction offices located at central districts namely Ba Dinh, Cau Giay, Hai Ba Trung

2.1.3 Organizational structure

The organizational model of BIDV Dong Do Branch was built in the model of banking modernization, towards innovation and advanced in line with the scale and characteristics of branch operations The Executive Director has full responsibility

to operate branch with the assistance of four deputy directors

All departments are organized into five main groups

2.2 SITUATION OF CREDIT OPERATION AT BIDV – DONG DO BRANCH

2.2.1 Raising capital activities

Figure 2.1 Status of mobilizing capitals

Source: Report on the statistics of business activities

The mobilization of capitals at Dong Do Branch

Unit: billion dong

It can be seen clearly from the chart that the total amount of capital generated increased remarkably to nearly 12,890 billion VND at the end of 2015

In 2013, the branch witnessed a dramatic increase of nearly 36.6% in sales of deposits, even though SBV issued decision on lowering deposit ceiling rate to 7% To achieve that good figure, there were many preferential policies implemented to support all economic sectors In 2014, it continued to rise gradually by only 16.66% compared to the total amount of deposits in the previous years as the deposit rate kept reducing by 1.5 to 2 percentage points After one year, the economic context flourished thanks to the recovered situation

of bad debts in banking systems as well as the rise of deposit rates from the beginning of May, 2015 As a result, the growth of capital mobilization of Dong

Do Branch grew up to 12,890 billion VND, which is 1.5 times higher than that of

2015 Apart from the economic environment, the branch has put many efforts in mobilizing capital by diversifying the forms of mobilization and providing flexible interest rates timely in line with the reality of economy Today, customers can deposit money without going to the branch with the support from loan staff Besides, each staff has been set a target to raising capital and this is also an indicator to measure officers’ performances

Table 2.1 Analysis of total mobilized capital from 2012 to 2015

(Unit: Billion VND)

Source: Report on the statistics of business activities

Looking at table 2.1, we can see that the structure of raising capital in the year period fluctuated

4-Features/

Years

2012 2013 2014 2015 Amount % Amount % Amount % Amount %

Types of

term

Term deposit 4,862 81% 7,607 93% 8,746 92% 11,530 90% Non-term

deposit 1,150 19% 572 7% 760 8% 1,360 10%

Deposit

Term

Short-term 5,501 91.5% 5,887 72% 7,605 80% 10,159 79% Medium and

long-term 511 8.5% 2,292 28% 1,901 20% 2,731 21%

In terms of currency, the main currency deposited at Dong Do Branch is in VND From 2012 to 2014, the deposited resource in VND accounted for nearly 90% of the total raised funds; however, in 2015, that index reduced by approximately 4% In contrast, the proportion of the foreign currency was only around 10% to 13% These figures were a result from changes in SBV’s decision

on the maximum interest rates for deposits in US dollars and VND to prevent hoarding dollars and dollarization

Regarding to economic sectors, the most resource of funds mobilized was from financial institutions Noticeably, from 2013 to 2014, since SBV allowed credit institutions to deposit money in others based on Circular 01/2013/TT-NHNN, the percentage of money deposited by financial institution rose from 52% to nearly 60%, whereas the proportion of inhabitants declined slightly to 40%

Term-deposit was a customers’ favorite choice during four years In term

of deposit maturity, although short-term capital accounted for much higher rate

in comparison with medium and long-term capital, it experienced a markedly fall of nearly 2.5% The downward trend in the amount of short-term funds could be explained by the tendency of customers towards the reduction of interest rate According to the secondary data provided, most inhabitants switched to deposits which had longer terms than seven months, so that they could earn higher rates

2.2.2 General assessment of the business results of BIDV - Dong Do branch

Figure 2.2 The business result of Dong Do Branch

Source: Report on the statistics of business activities

As can be seen clearly from the graph, the branch gained profits every year during 4-year period The total earnings in 2013 and 2014 climbed dramatically to 1,208 and 1,329 billion, compared to 1,208 billion in 2012; however, the revenue could not fully recover for a significant increase in the total amount of cost This led

to profit growth in 2014 and 2015 being smaller than in 2015 Although the branch witnessed a slower growth of only 1 billion, there was a biggest difference in revenue and cost To achieve such great results, Dong Do branch had to put many efforts in implementing synchronization solutions including increasing revenue from money transfer services, realizing remittances as customers’ requests, particularly in international payment operations and foreign currency trading

5071

4613

+14.13 +14.09

6330

5730

+24.83 +24.21

4817

254

+11.76 +90.08

6180

150

+28.23 -40.94

2794

2277

+4.76 +28.21

4342

729

+9.81 +49.08

5130

1200

+18.15 +66.67

Source: Report on the statistics of business activities

As can be seen from table 2.2, credit activities of the branch had a tendency to expand gradually In 2012, since the directives of SBV and Bank for Investment and