CAPSTONE PROJECT REPORT BUILDING A STRATEGY FOR DEVELOPMENT OF RETAIL BANKING BUSINESS AT BIDV PERIOD 2010 - 2015 BÁO CÁO DỰ ÁN CAPSTONE XÂY DỰNG CHIẾN LƯỢC PHÁT TRIỂN HOẠT ĐỘNG NGÂN HÀNG BÁN LẺ TẠI BIDV GIAI ĐOẠN 2010 - 2015

CAPSTONE PROJECT REPORT BUILDING A STRATEGY FOR DEVELOPMENT OF RETAIL BANKING BUSINESS AT BIDV PERIOD 2010 - 2015 BÁO CÁO DỰ ÁN CAPSTONE XÂY DỰNG CHIẾN LƯỢC PHÁT TRIỂN HOẠT ĐỘNG NGÂN HÀNG BÁN LẺ TẠI BIDV GIAI ĐOẠN 2010 - 2015

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

BUILDING A STRATEGY FOR DEVELOPMENT OF RETAIL BANKING

BUSINESS AT BIDV PERIOD 2010 — 2015

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This capstone project report was composed by only the listed authors We guarantee that all the data used in this report are authentic and verifiable This report is only for the studying purpose and does not necessarily reflect the official point of view of BIDV

The authors reserve their copyright on this document and any copy or reproduction of its contents without permission is prohibited

Hanoi, January, 2010

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1.1.1 The concept of business strategy

1.1.2 The benefits and the role of strategic management

STRATEGIC MANAGEMENT IN BANKING

1.2.1 The Concepts of Bank and Retail Banking

1.2.2 The role of strategic management in banking

1.2.3 Strategies and trend in retail banking business

THE PROCESS OF STRATEGIC BUSINESS MANAGERMENT

CONTENT STRATEGY BUSINESS MANAGEMENT

1.4.1 Defining of objectives

1.4.2 Environmental Analysis

1.4.3 Buiding business strategy

1.4.4 Implementing business strategy

CHECKING AND ADJUSTMENT OF BUSINESS STRATEGIES

CHP TERA 0a LVRS GETHE ACTUAL SITUATION OF

RETAIL BANKING BUSINESS AT BIDV 2.1 OVERVIEW ABOUT BIDV OR BANK FOR INVESTMENT

AND DEVELOPMENT OF VIETNAM

2.1.1 General Introduction

2.1.2 Objectives

2.1.3 Slogan of BIDV

Nw 1.4 BIDV’s Products — Service

RETAIL BUSINESS FIELD

2.2.1 BIDV Internal environment

2.2.2 BIDV External environment

2.2.3 SWOT analysis

CHAPTER III PROPOSING STRATEGIES, RECOMMENDATIONS

AND CONCLUSIONS 3.1 BUILDING OF STRATEGIES

3.1.1 Boston Consulting Group model

3.1.2 SWOT matrix

3.2 PROPOSING STRATEGIES

3.2.1 General strategy (at corporate level)

3.2.2 Competitive strategies (at business unit)

3.2.3 Strategies at functional level

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Customer Relationship Management Deposit certificates

Human Resource Management Internet Banking

Incombank Information Technology Information and Telecommunication Technology Official Development Assistance

Point of Sale Public Relationship Research and Development Retail Banking

Strategic Business Unit Small and Medium Enterprises Strength, Weakness, Opportunity, Threat Vietnamese Bank for Agriculture and Rural Development Vietcombank

World Trade Organization

Western Union

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Customer segmentation for BIDV

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INTRODUCTION

Providing personal financial services or retail banking (RB) business is one of the traditional activities to form the world commercial banking system Since its formation until] now, RB has played an important role to create sustainable development for commercial banks RB is less affected by economic cycles It scatters risks and contributes to create capital and stable income for the banks In addition, the retail banking’s actvities play an important role for expanding the market, increasing the competitive capabilities and stability of the bank’s performance

This role has been shown clearly in the recent world economic crisis Almost all commercial banks which had strategy focusing on RB have survived while the big investment banks were bankrupted such as: Merrill Lynch, Lemon Brothers or felt into difficulties and also shifted to the RB field Therefore, the trend today of commercial banks in the world is development of RB

In Vietnam, stable politial and social enviroment, growing economy, large population, living standard is more and more improved, the consumer trend and service usage are more and more increasing, the development of the personal financial services is still low which all make the retail banking market be considered as having great potential and opportunities for development for domestic and foreign commercial banks

With the process of economic integration to the world, banks in Vietnam now is facing the RB development requirements to meet the demand, being under competitive pressure not only of the domestic banks, but also of foreign banks operating in the country

Besides tradition, experience and strengths in corporate banking, the RB business

of BDIV is until now mostly spontaneous, without strategic plan Under the intensifying pressure of competition and international integration, BIDV needs to have a strategy for development of RB, making this activity become one of the core activities of the bank in order to help the bank keep its competitive capability and

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sustaina le deve opment Because of these reason, we chose the topic "BUILDING

A STRATEGY FOR DEVELOPMENT OF RETAIL BANKING BUSINESS

AT BIDV PERIOD 2010 — 2015" This is a highly practical topic, contributing to meet the needs of business and development of BIDV in the future Besides significant importance for the bank, studying this topic will also help the team members to apply the learned knowledge into real business, thus enriching and to improving knowledge about business administration in career development

To build an appropriate strategy for the bank in period 2010-2015

To propose implementation of the chosen strategy to achieve the objectives of BIDV Research Methodology:

Studying theoretical basis for building of strategies for the general business, bank and RB

about the activities of the business is gathered from the bank internal reports

Matrix and the theory of the 5 competitive forces by Michael E Porter

Structure of the article:

Chapter 1: Theoretical basis about strategic management in general business, banking and the retail banking field

Chapter 2: Analysis the current situation of retail banking business at BIDV Chapter 3: Proposing strategies for development of retail banking business at BIDV period 2010 - 2015, the solutions, recommendations and conclusions

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CHAPTER |

THEORETICAL BASIS OF STRATEGIC MANAGEMENT IN GENERAL BUSINESS, BANKING AND RETAIL BANKING FIELD

1.1 BASIC ISSUES OF BUSINESS STRATEGY

1.1.1 The concept of business strategy

There are many different definitions about business strategy, each definition is more

or less depending on the viewpoints of each author [3, 4, 6, 11]

Alain Threlart said: "Strategy is the art that businesses use to compete and gains

victories"

According to M Porter: "Strategy is the art of building the competitive advantages for defensing"

According to the united point of view : "Business strategy is the art of coordinating

activities and controls them in order to achieve long-term goals of the business"

In 1980, Quinn gave a more general definition: "Strategy is a pattern or plan to integrate the major objectives, policies and action sequences into a closely cohensive entity"

Mintzberg defined the general strategy with 5P:

Plan: The sequence of actions intended consistently

Pattern: The time consistent behavior, intended or not

Position: The match between the organization and its environment

Perspective: the way for perception of the world

Ploy: The concrete way to defeat the competitor

By Charles W.L.Hill and Gareth R Jones: "Business strategy is a process of identifying the basic and long - term goals of business, choosing the way or action method and allocation of resources to achieve the goals"

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According td Ered R David (4 ‘Business strategy is the means to achieve long-

"Business strategy is a general long-term plan or a general action program in order

to exploit the resources to achieve the objectives of the company, ensuring conformity with the change of environment"

With the birth of the concept of business strategy, the concept of strategic management in business has also been introduced

By Fred R David: "Strategic management can be defined as an art and science for

establishment, implementation and evaluation of decisions related to many functions

allows an organization to achieve its objectives"

By John Pearce II and Richard B Robinson: "Strategic management is a system of decisions and actions to form and perform plans to achieve the objectives of the company

Therefore strategic management, like any other management process, consists of planning, organizing the implementation and supervise the implementation Object of management here is the impact of the environment (the uncertainties, and opportunities) and the way businesses respond to the impact of the environment (by the efforts of all units of the business) In other words, strategic management includes synthezising of planning activities, organization for implementation and check, adjustment business strategies to ensure that company always seizes the opportunities and limits or avoids the threats, the risk

in the way to achieve its goals

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mission C) C) the ) sellected C) adjustment

Figure 1.1: Strategic management

environment, defining the objectives of the organization; decision making, performing and supervising the implementation of the decisions to achieve those objectives in current or future environment to enhance competitive capabilities and position of the enterprise

Strategic management consists of 5 tasks with close relationship and mutual impact

- Building a strategy to achieve the desired goals

- Implementation and direction the selected strategies effectively and efficiently

- Evaluattion the implementation and adjustment of the strategic vision, long-term objectives, strategies, experiences and opportunities

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112 The BE ahd the tole of strategic management

Strategic management helps companies to seize and take advantage of business opportunities and simultaneously to take measures to overcome the risks and threats,

to contribute to enhance the efficiency of using resources, to increase competitive

management creates the solid bases for setting out the policies and decisions on production and business activities in accordance to the fluctuation of the market On the competition aspects, the core capabilities which make the difference and create certain advantages should be used Such capabilities consist of the knowledge, skills technologies and special resources for an organization to differentiate itself from the competitors and create competitive advantages

Strategic management process helps companies to see clearly their purpose and direction Awareness of desired results and future goals will help leaders and employees to realize what to do to achieve success

Environmental conditions that organizations face are fast-changing and can create surprises Management strategies help managers to see the environment in the future,

so they can control it better and utilize the opportunities and avoid or reduce the risks Strategic management helps managers to use effectively the available resources of the company and allocate them rationally It helps companies to make decisions in accordance to environmental conditions In addition, strategic management engages managers at all levels in the organization and creates resonance to achieve common goals of the company

1.2 STRATEGIC MANAGEMENT IN BANKING

1.2.1 The Concepts of Bank and Retail Banking

1.2.1.1 The concept of bank:

According to the functions (services and roles) the bank performs in the economy,

the bank is considered as a financial intermediate organization that accepts deposits,

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The most common activities are accepting deposits, using that money to give credit, providing payment services

The main characteristics of banking activity:

The bank mobilizes the idle capital of organizations and population, using that money for lending (so using not-own money to give credit) to other organization

or people, thus creating both subjective and objective risk This is a sensitive area, relating directly to all sectors and all aspects of social economic life

Financial asset: highly profitable but it is influenced by factors as interest rate, inflation so banks face many risks

Providing other services to the economy: The large scale of a bank can create

good relationship between the bank and its customers

Risk for banks is the relationship between banks and customers

Bank’s goods are money Compared to conventional goods, money value is fluctuating quickly by influence of inflation, exchange rates, interest rate Money is considered as special good which a state uses to manage the macroeconomics Money could influece development or degradation the economy of a country, therefore it is controlled strictly by the government 1.2.1.2 The concept of retail banking service:

According to WTO, retail banking is a typical type of banking service Retail bank

is a place where individual customers can come to carry out such activities as

commercial banks, retail banking services play an important role to enhance competitive capability and expand market share, to bring stable revenues and contribute to create the quality of the banking busisness In addition, it creates

opportunities for individuals and small businesses

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According tus economic experts of Asian Techonology Institute, retail banking are services providing products -services to individuals, households, small and medium businesses through a network of branches Customers can also have direct access to banking products and services through telecommunication and information technology [hus in general, the retail banking is services providing financial products and services

to customers who are individuals, households, small and medium enterprises

1.2.1.3 Characteristics of retail banking services:

Object customers of the retail banking services are extremely large but the value of each transaction is not high Retail banking products are both debit assets and curent assets (Saving assets, current accounts, bill payment, debit and credit cards, consumer loans, ) The development of retail banking services depends on the information technology level of the economics in general and the bank in particular In addition, one of the success factors of the retail banking service is distribution channels

1.2.1.4 The role of retail banking services:

- For the economy: The retail banking services directly change a cash economy into a non-cash economy, raising the efficiency of state management, reducing social cost in payment and exchange in cash In addition, through retail banking services, the process

of currency flow is strengthening and more effective, the capital potentials are utilized and exploited better to promote business, production and consumption, improving the lives of people Banking services are connected closely to the social life Therefore, enhancing of the capital flow and stability of the financial system they contribute to ensure the effectiveness of the state’s macro- management of the economy

- For bank: RB diversifies products and provides a stable source of revenue for banks, create a foundation for sustainable development for commercial banks The retail banking operations contribute to create stable capital and income for the banks, scatter the risk and are less affected by economic cycles In addition, the retail banking operations contribute importantly to expanding market, improve competitive capability and operation stability of the bank

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and time for customers

1.2.2 The role of strategic management in banking

To be able to exist and develop a bank must have right business orientation Strategic management helps banks to get right business orientation in the short, medium and long terms Strategic management helps banks to adapt to the changing business environment, highly risky and sensitive field of business Strategic management also helps the bank to improve management ability, development in the business environment in order to take the opportunities and cope with challenges, to exploit and use resources in a bank rationally and efficiently Resources of the bank consist of human resources, organization and facilities, techniques In the banking activities, building and implementation a strategy are extremly important Management of the bank directly impacts the bank performance and even the value of that bank in the market In the macro level, banking management affects risk-taking capacity of banks and is a measure for the adaptable ability of banks to pressure of the economy

management will be more intensified for the domestic banks It is not only for resistance of competition but also for the stable interaction of the inter-bank market

A bank with weaknesses in management will not only cause losses to the bank, but also creates certain risks with chain character for other banks, affecting the economy and impacting on effectiveness of the state’s macro-regulatory policies So the strategic management in banking is very important, especially the stage of objectives definition, selection of the most appropriate plan, ensure both compliance

to the macro monetary policy and profitability, lowering the risk level

There are strong relationship between a bank’s strategic management and its performance [9, 18 , 21, 24 27], as top bank performers usually has best strategies, developed for years [25]

12131 siratft es and | thưeh Fin Wanking business

There has been documented the relation between customers’ satisfaction and performance of retail banking [12, 22, 24, 26] Most banks in retail banking business now are focusing their strategies in improvement of customer relationship management (CRM) [12] In the era of internet and information technology (IT) retail banking services via IT have become more and more important [10, 17] With development of the e-banking, the CRM has become more complicated since personal contacts between banks and customer are diminishing or vanishing, so specific strategies may be required [19] The other strategies for retail banking development are expansion or consolidation of bank branches [8], market niche entry planning [13], improvement of risk management [14]

Looking at the future next decade, Kimberly Hedley and colleagues from IBM Institute for Business Value indentified 2 megatrends in retail banking: (1) Customers redefine the rules of the game as their power is increasing, and (2) universal banks and ultra-focused niche players thrive as competition is intensifying [16] The same authors also proposed four strategic imperatives banks must follow

to cultivate innovation and position themselves for sustainable growth:

(1) Focus on core strengths and partner for everything else - Leading banks will optimize their performance by becoming specialized enterprises, managing only strategic, differentiating business components internally and partnering with best-in- class specialists for those capabilities that do not drive competitive advantage

(2) Optimize the potential of each customer relationship - Rather than attempting to be all things to all people, industry leaders will use superior customer insights to offer the most appropriate and profitable products, tools and services to targeted segments

(3) Harness the potential of the workforce through effective performance management - Banks will need to realign skills and set the right performance metrics

to motivate a changing workforce to continuously pursue innovation

(4) Recognize that technology will be a critical element of success - By making technology a central component of the strategic decision making process, banks will be able to tightly align their business and technology initiatives, and will be able to differentiate their offerings and seize market opportunities with greater agility

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orientation, to increase initiativeness and adaptability, to capture the opportunities and cope with the future challenges Strategic management process consits of six basic steps (figure 1.2)

Sati BT objectives of mentation | |adjust men abiactive -*»> +P business H»| business } | business

strategy strategy Strategy

to identify their goals, the bank needs to answer the following questions:

1 Customer: Who are the customers of the bank? Who will be the target customer?

2 Products or services: What are the bank’s main products and services?

3 Market: In what market does the bank focuse on competition?

4 Technology: Investment in technology and development potential?

5 Attention to the existence, growth and profits: Has the bank committed to achieve growth and financial stability?

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and priorities of the business ethics of the bank?

7 Self-Assessment: What are competitive advantage and core capabilities of

1.4 CONTENT STRATEGY BUSINESS MANAGEMENT

Ị 4.5 trận" ase for ( bermtabie 0bjectives:

- Functions, tasks and activities of each bank

- Guideline and policies of the government

- Mission or business principles and purposes of the bank, or in other words, the leaders and managers’ point of view

- Business Environment

- The resources of the bank

- Geographical location, natural conditions, customs, cultures, consumption habits

of the locals where the bank is headquartered

1.4.1.3 Requirements of the objectives:

- Quantitative: Objectives must be quantifiable The quantifiability or measurability helps the bank to check whether its objectives are achieved or not

- Feasibility: The objectives are feasible or could be reached If you set goals too high, you will not achieve them, thus discontenting managers, employees, customers In the opposite case, they would waste resources

- Specification: The objectives of the bank must clearly identify the limits which should be reached, the time necessary to complete the goals Large objectives should be specified or splited into more small targets which are easier to be achieved For example, building the objective of expanding market share needs to determine rate of expansion for each market, the needed time to achieve

- Legitimacy: The goals that the buiding bank must conform to the law

- Consistency: The objectives of the bank in each period should not obstruct or conflict with each other Conflicting objectives can never be achieved, thus making the process of setting goals meaningless

1.4.2 Environmental Analysis

To build business strategies, the study of the environmental factors is very important It can help companies to recognize the opportunities, to see the risks and

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tial EG that a company may face so managers can build strategies in order to take advantage of opportunities and minimize risks Environmental are the factors, forces influencing activities and performance of the business Business environment include in the macro environment, micro-environment (industry) and conditions within the enterprise

1.4.3 Buiding business strategy

1.4.3.1 Proposing business strategy:

There are three levels of strategy according to the equivalent levels of management:

- Overall Strategy (corporate level):

To answer 2 key questions: what business activities to be carried out and how the firm (corporate) manages these acivities The strategy of firm level chooses and manages a group of different business activities in some industries and market-products

- Strategy for a business unit level:

This is a set of commitment and acitivities a firm uses to gain competitive advantages by using its key success factors in a particular market with particular product (s) According to Abell, to buid a strategy in business unit level, three

factors must be defined: (1) customers’ needs (what to be satisfied); (2) customer groups (who to be satisfied); (3) how to be satisified

There are three basic approaches to build up competitive advantages: (1) stratedy of cost leader; (2) strategy of differentiation; (3) strategy of focus (or segmentation) In practice, not rarely the mixed approaches are used instead of purely one

- Strategy of functional level:

Strategy of functional level support strategy of business unit and the general level

to help achieve the firm’s common goal Functional level strategies aime to improve efficiency of the basic activities inside the firm as production, marketing, R&D, human resource [6]

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1.4.3.2 Analysis and selection of business strategies:

The combination of management opportunities, risks, strengths, weaknesses identified

in the analysis of business environment and internal company with the goal that companies need reach to make the choices suitable strategies

a SWOT model:

SWOT is an abbreviation of Strength Weakness, Opportunities, Threat SWOT matrix is used to list all opportunities, risks from external environment, and strengths and weaknesses from internal environment for a company, in an appropriate order and placement To build SWOT matrix, firstly managers have

to conduct screening process, identifying the real opportunities and threats as well

as the main strengths and weaknesses of the enterprise

SWOT matrix of the bank is very complex There is no formula to make decision Difficulty of using the model is in combination of matrix elements and there is no certain method to select optimal pair of factors

b BCG model:

This model was proposed by Boston Consulting Group The model is fixed by two factors, the vertical axis: evaluation of the industry growth rate; horizontal axis: relative market share of a company compared to the whole industry

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Bank analyZes market share compared to the competitors as well as industry growth rate to determine the bank's position

1.4.4 Implementing business strategy

1.4.4.1 Setting annual objectives:

Annual objectives are part of the identified overal goal It is considered the results that a bank wants to achieve in its business each year and help the bank achieve the defined overall objectives The meaning of the annual objectives could be expressed

in three aspects:

- Annual objectives are the basis for managers to confide tasks to individuals and each department in the bank

- They are the basis for checking, monitoring the implementation process

- They are the basis for the allocation of resources in each department

1.4.4.2 Building policies and action plans:

Policies and action plans are short-term plans, concretizing the contents of business strategies to help administrators identify the tasks, tactics that banks must perform

in each year The policies clearly defined principles, rules that the functional departments must comply with in the working process These policies are regularly updated, modified to suit the changes of the business environment

1.4.4.3 Allocation of resources:

Managers have to allocate resources rationally The bank has many methods to ensure the effectiveness of the process of allocating resources The bank should allocate the resources according to the importance of a task In this process it must ensure economy, optimal use of the resources, focus on main resources

1.5 CHECKING AND ADJUSTMENT OF BUSINESS STRATEGIES

This process helps administrators to identifie timely the changes and errors in the process of building and implementation of the business strategy, to find the causes

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objectives

Big changes in external

environment

Strategic management is a very dynamic and uninterrupted process Each change in

a major component of the model can lead to change one or all other components Therefore, the activities of formulation, implementation and evaluation of the strategy should be performed continuously

To operate effectively, managers have to solve not only internal issues, but also the factors from the external environment affecting the busisness In banking business, this is an important issue to decide the success of the enterprise in the market Therefore managers should concentrate on studying and predicting the variation of environmental factors, the competitive ability, to draw out the best banking development strategy to achieve the goal of profit and complete their mission

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ANALYSIS OF THE ACTUAL SITUATION OF RETAIL BANKING BUSINESS AT BIDV

2.1 OVERVIEW ABOUT BIDV OR BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM

2.1.1 General Introduction

Established on 26 April, 1957 by Decision No 177/TTG of the Prime Minister, BIDV is under direct rule of the Finance Ministry In the earluy stage the bank consisted of eight branches and 200 staffs with the name: Bank of Construction of Vietnam Its tasks consisted of allocation, capital management, supplying capital for

all social and economic fields

On 24 June, 1981 its name was changed to Bank for Investment and Construction of

Vietnam, under direct rule of Vietnam State Bank On 18 November, 1990, the bank

was renamed as Bank for Investment and Development of Vietnam BIDV's mission was changed: Continue to receive capital to give credit to state- planed projects; raise capital from medium and long loans for investment and development; currency operations, bank’s service, credit for business mainly in construction and installation to serve investment and development In 1995 BIDV was granted a versatile business license, diversifying its business fields, including financial, curency, credit and banking services conforming to the law, constantly increasing the profitability of the banks, contributing to the implementation of national curency policy for developing the economy of the country

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To build Bank for Investment and Development of Vietnam to become a Finance Bank corporation with multi-owned mechanism, multi-sector business including activities in finance, banking, insurance, securities and financian investment, estate- real estate, at a level equal to the advanced financial banking corporations in South [ast Asia The bank operates under international convention, quality - prestige, scale efficiency, and is the leading retail bank in Vietnam

2.1.3 Slogan of BIDV

2.1.4 BIDV’s Products — Service

management of investment portfolio

companies for investment in projects

2.1.5 Organizational structure

The board of directors:

Is the highest department of the bank, deciding development strategy and orientation of activities of BIDV

Board of general managers:

Board of general managers is the directly managing deparment and manages all

activities of the bank

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PRY SP mapres 3i tị GHẾ ee have the largest distribution network in the banking system in Vietnam, divided into two blocks:

Business Block:

transaction places, more than 700 ATMs and tens of thousants POS places spread all over the country, ready to serve all customer needs There are two specialized units:

Y Bank for payment for the stock market (Nam Ky Khoi Nghia)

Y Wholesale bank as trustee agency disbuting ODA capital (3rd Transaction

Y Financial Leasing Company |

Y Financial Leasing Company II

Y Financial Investment Company

Y Fund Management Company Industry and Energy

Vv BVIM Investment Management Company

¥ VID Public venture Bank

Y Laos - Vietnam venture Bank

Vietnam - RussiaVenture Bank

BIDV Tower verture bank

Y Venture Bank of Cambodia

D C F Vi

¥V Training Center

Y Information Technology Center

Total staff of the whole system is over 10.000 people

2.2, ANALYSIS THE ACTUAL SITUATION OF BIDV IN THE RETAIL BUSINESS FIELD

2.2.1 BIDV Internal environment

2.2.1.1 Organizational structure of retail banking:

Since September 2008, BIDV has made reconstructure in organization and operational activities in the whole system Headquarters formed 7 blocks and the Branch formed 5 blocks (customer relationship, risk management, operational management, internal and subsidiaries) Accordingly, organizational structure for the retail banking operations consists of:

a BIDV’s headquarters:

There are 3 units in BIDV headquater: Department for retail product development and marketing, Card Center and Board for managemenr of

branches

- Retail product development board and Marketing: To advise and help the Board

of Directors in direction of development and management of retail products including retail credit products and retail non-credit products (except for card product), development and management of modern distribution channels (not including ATM / POS) and retail marketing operations of the bank This unit ts

management of retail products; defining distribution channels, how to sell to the department concerned; responsible for efficiency of assigning retailed products

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strategies, solutions and organize the business in the system of BIDV; Directing and guiding the member units to conform to the policies of the government, State

Bank BIDV in card business

- The Board for management of branches: Advising Committee and helping leaders in the development of business networks in the whole system (including branches and transaction offices, transaction, savings, ATM ); controling and orientattion activities of the branch in accordance to the conditions and characteristics of each locality; Direction, guidance and supporting branch implementing business plans and business operation: intermediate role between the Executive Board of Directors, the Board, Center at Headquarters and the branch

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There are departments for individual customer relationship management, individual customer service and transaction office with main tasks: marketing, direct selling the retail banking products or services to individual customers and

households

According to the internal statistic report, to 9/2009, the BIDV system has just only 30 from total 108 branches with established separate individual customer relationship department with 250 staffs The others established in the individual customer relationship unit in the general customer relationship department and most staff holds both wholesale and retail service products concurently

department/ team/

brand

Credit management

Figure 2.2: Organization of retail banking at a BIDV branch

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25 1S oon Neve opment of retail banking network

Until now, BIDV has 1057 staff serving retail operations (including 324

professional staff responsible; attend by 30,6% / total staff and 733 retail staff the search, accounting for 69.4% / total retail staff), accounting for about 8% of the staff system As mentioned above, with 103 level 1 branches with nearly 400 trade offices, more than 700 ATMs and tens of thousants POS places, BIDV has the second largest network in the country, ranged only after Angribank (Appendix No 6)

b Network ATM — POS:

In 2005, BIDV had the second largest ATM network (ranged No 2 after VCB),

but in 2006 BIDV rated on 4th place after VBARD, VCB, East Asia Bank with 14.3% market share In 2007, BIDV rose to third place on the ATM network after VCB and VBARD with 15,1% market share However, in 2008, though retains third position on the ATM network, market share of BIDV has dropped to

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"B},t°090599liW Sea onan place on the number of ATMs in the market

with the market share reduced to |] 1.2%

However the trend for inter-connection of banks card operations is dominating with participation of more banks Number of members of the card alliance is increasing with the number of new banks joining the card market At present, BIDV is joining two card alliances Banknet and Smartlink, and so far the two alliances were connected each other Thus the number of ATMs belonging to a bank is no longer a critical issue affecting the customer decision to use the card service

2.2.1.3 Development of retail banking products and services:

In the period 2006-2008, many retail banking products and services contributed to diversification of services provided to individual customers, while also contributing

to increasing revenues for banks

Retail business at BIDV had initially been payed attention for development,

especially in the period after September 1°, 2008, when BIDV reformed business

organization into 2 separate wholesale and retail blocks Since then RB has made a certain contribution to BIDV business performance

The marketing activities in retail banking which Head Office and branches have actively implemented, from building of marketing programs for the products (external marketing and internal marketing) and formulation of mechanisms and policies in marketing activities, market research services to promote the retail banking activities

However, work in BIDV retail business is not yet corresponding to the potential of development and the results are still quite modest This may due to perception of the important role of retail banking is not consistent in most directing levels, the attention of the branches in the organization for implementation of retail banking is sull limited Many branches have not been interested much in RB activities and have not arranged enough staff for retail operations

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a The retail credit activities:

BIDV has long had a strong position and experience in lending for investment and development for enterprises of large and medium scale (wholesale) Interest in retail credit activity started from recent years, especially from 2008 as mentioned above

To 31/12/2008, the proportion of outstanding retail credit debt/ total of BIDV constituted a modest proportion (10,9%) but the outstanding retail credit debt scale of BIDV equivalent group of major banks such as Vietcombank, ACB and Sacombank (2008 outstanding credit debt of the retail bank in turn is 8.809 billion VND, 16.258 billion VND, 18.356 billion VND and the BIDV 16.220 billion VND) (Table 2.1)

Table 2.1: Results of the retail credit in 2006, 2007 and 2008 [2]

outstansing retail credit debt of BIDV reached 16.567 billion VND, increased by 66% compared to 2006 In 2008 it was affected by economic fluctuations (interest rate of capital mobilization reached record high 21% per year) Despite high inflation rate, low liquidity, reduced production and financialcapacity of business and, outstanding retail credit debt of BIDV

remained 16.220 billion VND in 2008

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BIDV reached the ration of outstanding retail credit debt / total outstanding debt nearly 11% in 2008 while stocks commercial bank have the rate from 35-50% However, those banks typically define retail customers including small and medium enterprises, and development activities of retail banking are the main direction of their development

0.8% and 2%

Table 2.2: Results of credit by type of retail product [5]

debt | Ye" | (%) | debt | TP | (%)

2 | Credit guaranteed by salary | 1.487 9 N/A 1.338 8 -10

usisness

In the retail credit products of BIDV, credit small family business constituted the largest proportion of outstanding credit, by over 39% of total retail credit debt Total credit debt for small family business in 2008 reached 6.357 billions VND, growing 18% over 2009, reaching the highest growth in retail credit of BIDV In fact, BIDV has no specific product for small family business but on the basis of general provisions for loans of banks and BIDV, the branches have actively

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PE fom ted the loan for small family business especially the Central Highlands, the Red River delta, the Mekong River

total outstanding retail credit debt, mainly due to activities of the branches in major cities Total outstanding housing-related credit debt in 2008 reached 2.799 billions VND, growing 8% compared to 2007 To accelerate product development for home loans good cooperation and coordination with the investors of new urban areas in the process of lending and management of morgaged real estates would be of advantage but BIDV has not exploited well this relationship in recent years

31% compared to 2007, accounting for over 14% of total outstanding retail credit debt It dued to strong decline of the stock market and of the demand of credit for securities business, as well as the BIDV policies for restriction this type of credit

debt of the whole system in 2008 only reached nearly 20% of total outstanding retail credit debt

b Activities raising capital from population:

Recognizing the importance and long-term stability of population capital, BIDV always pays attenttion to individual capital mobilization, creating a series of

products to meet diverse needs of customers: savings ladder, savings with

flexible withdrawal, savings golden eggs This has contributed to achieve the faborable results in mobilization of population capital for the period 2006-2008

In these three years, growth rate of individual capital mobilization of BIDV at the end of the period reached 7% per year, raising capital average 6% per year Growth rate of population capital mobilization depends on the effectiveness of various investing channels in the economy For example in 2007 capital mobilization from population declined due to attractiveness of other investment

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comply with the ceiling interest rate of banks BIDV has actively pioneered lower interest rates to mobilize capital than other banks, resulted in withdrawal of customer from BIDV But by 2008 interest rate increased gradually to ensure real gain so that attracted customers to give personal deposit in the bank again By the end of December 31, 2008 total population capital mobilization reached 58.872 billions VND, average mobilized capital was 56.532 billions VND

Although the population deposits grew markedly, the proportion of those deposits to the total mobilized capital declined from 43% in 2006 to 35% in 2007 and only 31% in 2008 due to the stronger growth of deposits from customer- organizations

In general, from 2006 to 2008, the BIDV’s market share of population capital mobilization continued to decline (average 2,2% per year), especially in 2007 decreased 2,85% It was explained by the fact that the average growth rate of individual capital mobilization of BIDV (13.96%) was lower than the average rate of the whole system (35.28%)

Table 2.3: Capital mobilization of some major banks: market share (in % ) [7]

- 2 Valuable papers

Other credit organizations 9,25 16,27 14,9 13,45

* Vietcombank, Agribank, Vietinbank

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es l e years, the structure of residential deposits shifted positively with the proportion of deposits in VND term deposits, including valuable papers continuously increase However the proportion of deposits with term under 12 months increased sharply in 2008 and creatted pressure on the ability to balance the capital, the capital cost and business performance of BIDV

In three years, the proportion of VND deposits in total individual capital mobilization increased from 72% in 2006 to 80% in 2008 with the average growth of 12% / year (absolutely increase: 9.309 billions VND), to December 31,

2008 reached 46.484 billion VND Notably, in 2008 VND deposits increased by more than 19% (while in 2007 this figure is only 5%), due to the attractiveness of interest rates (up to 21 % / year)

From 2006 to 2008, the growth of foreign currency deposits tended to decrease with average of 9% / year (absolutely decreased: 2.338 billion converted VND), the proportion decreased from 27,58% in 2008 to 20,2% in 2008 and until December 31, 2008 reached 11.767 billions converted VND It was explained by excess of foreign currency sources, mainly U.S dollars, in the period and BIDV has actively applied interest rates lower than other banks in mobilization of USD

- Payment deposits and no-term saving deposits were created for the purpose of diversifying products and meet the needs of customers The proportion is not high only approximately 7% of total population deposit with a total balance reached 4.208 billions VND by 31 December 2008 In the last 3 years, balance of mobilization payment and saving deposits increased about 1.500 billions VND but the growth rate was not stable In 2008 it decreased 9% compared to 2007 In

2007, due to the hot development of stock market, these deposits grew 77% In product lines, saving Golden eggs is preferred by customers, with the balance last

mobilized in 2008 of 110 billion.

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capital This is the traditional product that BIDV focused to give competitive interest rate and product diversity: ordinary term savings, ladder savings, savings with flexible drawal, saving with lotery In two years: 2006, 2007, this kind of mobilization made up 85% of the mobilized capital from population, with a growth rate of 7% (equivalent to 2100 billion VND) However, in 2008, BIDV implemented valuable papers products which were directly competitive with the product term savings so the proportion of the later declined to 75%, with balance

by the end of 2008 reached 43.693 billion VND For products term savings : market share of BIDV off quite large (3% per year) mainly due to compliance with the provisions of the ceiling interest rate for banks, BIDV always actively pioneers lower interest rate of raising capital from population than other commercial banks, causing customers to switch to other banks

- Deposit certificate is a kind of product that has gradually received more attention of individual customers In 3 years, balance of this product increased about 5.900 billions, but the growth was not stable In 2007, it decreased 74% (equivalent to 3.300 billions VND), while in 2008 total sales reached 20.000 billion VND, BIDV has attracted nearly 10.000 billions VND (equivalent to 798% growth), bringing balance of valuable papers to 31/12/2008 to reach 10.350 billions VND This excellent growth resulted from BIDV’ 5 issuances of certificates of short term deposit in 2008 with attractive interest rates and flexible policy for payment before maturity, which were welcomed and preferred by customers That also explained why BIDV's market share of valuable papers increased strongly in 2008 compared with 2006 and 2007

In the two years: 2006 and 2007, the structure of the population capital at BIDV was maintained at a quite reasonable level as the proportion of deposit less than

12 months ranged from 36 to 39%, deposits 12 months or longer term made up

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dbout 35 70 lhe eposits with term of 12 months made up the largest share of

mobilized individual capital - about 45%, reflecting relative stability of the | g )

+, Card business:

The results of BIDV’s card business in the period 2006-2008 are shown in the Table 2.4 The average growth rate of quantity of the issued domestic debit card reached to 64% / year, but this growth rates were decreasing, in 2007 reached 88% but in 2008 only reached 40.6% In the first 6 months of 2009, the number

of debit cards increased only 6.9% in comparison to 2008 The growth rate of the number of BIDV’s debit card was lower than average rate of the market, making BIDV position and market share of domestic debit card decline continuously

over the years In 2005, BIDV was in the second place in the market of domestic

debit card, but in 2006, BIDV dropped to the fourth place (after VCB, East Asia and the ICB) with 13.5% market share; in 2007, it dropped down to the fifth position (after VCB, East Asia, and VBARD, ICB) with 12,27% market share In

2008 BIDV was in the 5th position but market share dropped to only 10,8% In

2009, although still maintaining the position, the market share of debit card

BIDV continued down to 10.2%.

BIDV officially entered the international card market from May 3, 2009 and issued only international debit cards, not yet international credit cards The volume of the issued international cards is still little, hardly noted in the

Vietnam market

BIDV officially launched the card payment services via POS / EDC from May

8, 2007 However BIDV met many difficulties in expanding its network of POS In 2008, the number of new POS increasedby 72% compared to 2007 but the first six months of 2009, the number of new POS decreased by 14,5% compared to 2009 POS network of BIDV currently holds a very modest market share of 3,5%

In 2005, BIDV was the second largest ATM network in Vietnam (after VCB), but in 2006 it dropped to the fourth place after VBARD, VCB, East Asia with 14.3% market share In 2007, BIDV were ranged the third on ATM network, after VCB and VBARD with 15,1% market share However, in 2008, though retains third position on the ATM network, the market share of BIDV has dropped to 13% In 2009, the third position was taken by Vietinbank and the market share of BIDV also reduced to 11,2%

Growth rate of net charge for card services of BIDV also had decreasing trend in this period, since net charge increased 75% in 2007 and increased only 17,8% in

2008 The performance in the first six months of 2009 has forecasted growth in this field this year will be not higher than the year 2008

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ota ain ess Sor in cee 2006 - 2008 achieved certain results but the growth rate in this field of BIDV was still lower than the overall growth rate of the market making the market share on the BIDV in specific segments of card business (card issuance, payment cards) decrease and the distance between BIDV with the major competitors increase

Other non-credit services:

¢ Quick money transfer WU service

In February 2006, BIDV became one of six official agencies of the Western Union money transfer services overseas and payment money transfers from abroad to Vietnam WU fast money transfer operations grew continuously over the years as the number of points assigned WU in 2006 from 294 points up to

406 points in 2007 and up to 505 points at the end of 2008 Along with expanding the sale network revenue from transaction fee of this activity had high

growth over the years (Table 2.5)