G1_00182 BÁO CÁO DỰ ÁN CAPSTONE XÂY DỰNG CHIẾN LƯỢC KINH DOANH CHO AGRIBANK CHI NHÁNH HOÀNG MAI GIAI ĐOẠN 2012-2015

Socialist Republic of Viet Nam Independence — Freedom — Happiness Ha noi, December 19 th, 2011 CERTIFICATE To : Whom it may concern We, Vietnam Bank for Agriculture and Rural Developm

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CAPSTONE PROJECT REPORT

BUILD BUSINESS STRATEGIES FOR AGRIBANK HOANGMAI BRANCH

IN THE PERIOD 2012 —- 2015

GROUP 8 - GaMBA X0410

1 Vu Thi Hanh

2 Dinh Tuong Van

3 Nguyen Doan Tam

4 Nguyen Van Qui (1968)

Ha Noi, 2011

Socialist Republic of Viet Nam Independence — Freedom — Happiness

Ha noi, December 19 th, 2011

CERTIFICATE

To : Whom it may concern

We, Vietnam Bank for Agriculture and Rural Development Hoang Mai Branch

certify that :

We agree to supply information concerning Capstone Project Report subject to

“Building bussiness strategies for Agribank, Hoang Mai branch in period 2012 —

2015” for 8" Group, MBA Class X0410 of ETC Center in Vietnam National

University and Griggs University

1.O5V'ERVIEW OF BUSINESS STRATEGIES 6

I B3L/SINESS STRATEGIES OF ENTERPRISE 6

3 SIPIEECIFIC KINDS OF BUSINESS STRATEGIES 6 -1I.B3L/SINESS STRATEGY MANAGEMENT 7 III | BUSINESS STRATEGY FORMULATION 7

LÍ, | BILISINESS VISION AND MISSION ST _2 TPHIE EXTERNAL ASSESSMENT _ 7

- THIE INTERNAL ASSESSMENT 9

4 STRATEGY ANALISIS AND CHOICE s9 4.1 STRATEGY ANALISIS 9 4.2 STRATEGY SELECTION H 4.3 LONG-TERM TARGETS 12 SECTION II: CURRENT SITUATION OF BUSINESS ACTIVITY OF |, AG:RIBANK HOANG MAI BRANCH ANALYSE IMPACTING FACTORS

| OVERVIEW OF AGRIBANK HOANG MAI BRANCH | "

| ABOUT AGRIBANK HOANG MAI BRANCH 13

2 ORGNIZATIONAL STRUCTURE | 14

4 SOME BASIC CRITERIA ; 15

II CURRENT BUSINESS STATE OF AGRIBANK HOANG MAI BRANCH _ 16

| MAJOR BUSINESS ACTIVITIES 16

1.3 INTERNATIONAL PAYMENT AND FOREIGN CURRENCY BUSINESS — 18 _1-4 DOMESTIC PAYMENT AND FUNDS 18 1.5 GUARANTEE ACTIVITIES 18

1.6 CARD SERVICE I8

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2.BUSINESS RESULTS OF AGRIBANK - HOANG MAI BRANCH

BRANCH

I.ANALYSIS OF EXTERNAL FORCE

1.1 ANALYSIS OF GENERAL BUSSINESS ENVIRONMENT

1.2 BANKING BUSINESS ENVIRONMENT

1.3 OPPORTUNITIES AND THREATS

1.4 ASSESSMENT OF EXTERNAL FACTORS

1.5 COMPETITOR ANALYSIS

2 ANALYSIS OF INTERNAL FORCE

2.1 HOANG MAI BRANCH’S RESOURCES

2.2 HOANG MAI BRANCH’S CAPACITY

2.3 STRENGTH AND WEAKNESS

2.4 ASSESSMENT OF INTERNAL ENVIRONMENT

SECTION III - BUSINESS STRATEGIES FOR AGRIBANK HOANG MAI

BRANCH PERIOD 2012-2015

I VISION, MISSION

_2.MISSION

II LONG-TERM BUSSINESS TARGETS IN THE PERIOD 2012 ~ 2015

III STRATEGIC ANALISIS AND CHOICE

1.STRATEGIC ANALISIS

1.1 STRATEGIC ANALISIS WITH SWOT MATRIX

1.2 STRATEGIC ANALISIS WITH SPACE MATRIX

2.STRATEGIC EVALUATION AND SELECTION

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Vietnam bank for industrial and commercial

Vietnam bank for investment and development

Australia and New Zealand Bank Hongkong Shanghai Bank Corporate State Bank of Vietnam

Gross Domestic Product World Trade Organization International Standard Organization United State Dollar

Vietnam dong

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INTRODUCTION

Along with the current integration into the global economy the banking industry has

been strongly and obviously affected from this integration The integration will bring about both lots of development opportunities and many risks as well as challenges to each Bank At present there are 102 banks in Vietnam including domestic banks and foreign banks of which business networks are expanded throughout Vietnam Moreover the more new banks are established the more critical and fiercer the competition in finance and banking market is

Agribank Hoang Mai Branch of Vietnam Bank for Agriculture and Rural Development

‘Agribank) is the I-level branch directly under Agribank — the biggest commercial bank

in Vietnam currently For over 8 years of operation, Agribank Hoang Mai Branch has

developed strongly played the significant role in Hoang Mai District, and made

important contributions to the socioeconomic development in the Southeast of Hanoi

However, in order to remain the sustainable and efficient growth, and to justify its position among capital market, it is required Agribank Hoang Mai Branch to apply appropriate business strategies in accordance with each period, each stage, market trend

and to ensure the harmony between economic and social benefits

With our expectation to improve the position as well as importance of Agribank Hoang Mai branch in finance market our group number 8 have decided to develop the Project

“Business strategy of Agribank Hoang Mai Branch in the period of 2012-2015” The

Project consists of three main parts:

- SECTION I : FUNDAMENTAL THEORY ON BUSINESS STRATEGIES OF ENTERPRISE

- SECTION II : CURRENT SITUATION OF BUSINESS ACTIVITY OF AGRIBANK HOANG MAI BRANCH ANALYSE IMPACTING FACTORS

- SECTION II] : FORMULATION BUSINESS STRATEGIES FOR AGRIBANK HOANG MAI BRANCH —- SOLUTIONS AND RECOMMENDATIONS

We are looking forward to receiving highly valuable contributions from Teachers and

other students so that our Project is really practical improving the position of Agribank

Hoang Mai in particular and of Agribank in general

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SECTION I FUNDAMENTAL THEORY

ON BUSINESS STRATEGY OF ENTERPRISE

I OVERVIEW OF STRATEGIC MANAGEMENT

1 Business strategies of enterprise

Strategies of enterprise are long-term activities or general action routines toward

achieving objectives of enterprise

Strategy does not aim at showing specifically how to achieve those aims because it is the

duty of a multitude of assistance programs other functional strategies It only creates the

framework to guide thinking action

Strategy is usual defined as three levels:

- Corporate level strategy: Identifying and defining the goals objectives and business operations of the company, creating policies and basic plans to achieve the basic objectives of the company

- Business level strategy: Determining whether the product selection or specific form of the market for private business activities within the company determining how each business unit will try to accomplish its goal to contribute to the

completion of company’s common goals

- Functional- level strategy: defining solution, plans for each business field

2 Specific kinds of business strategies:

There are many kinds of strategies In the scope of this design we use some following

specific kinds of strategies:

- Product development strategy: Is increase in turnover improving or modifying current products or services

- Market development strategy: is providing current products and services to new

area

- Combination Strategy (towards): is increasing control to distributors or retailers

- Combination Strategy (backwards): is increasing control to suppliers

- Cost- leadership strategy: emphasizing on producing standardized products with

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low price for sensitive customers

- Key-focused strategy: is producing products and services which meets the demands of a small group of customers

Il BUSINESS STRATEGY MANAGEMENT

Business strategy management is art and science to establish implement evaluate decisions related to many functions which help an organization gain referred

objectives

Strategic management focuses on merging management financial accounting production development research, information system of business fields to gain success

Business strategy management includes 3 main periods:

- Strategy formulation period : is period of establishing business assignment, study

to specify internal and external shortcomings to formulate long-term objectives and choose among substitute strategies

- Strategic implementation period : Mobilizing managers and staff to carry out the Strategy Implementing strategies includes setting annual goals, developing policies and distributing resources

- Strategic evaluation period : including basic operations are to review the elements which are the basis for the present measure performance and implement corrective actions

III BUSINESS STRATEGY FORMULATION

Business strategy formulation is the first period of strategic management Process of business strategy management includes 4 following steps:

1 Business vision and mission

Business assignment specification includes specifying vision and assignment of

enterprise

- Vision: is a position which enterprise wants to reach in the future

- Mission: what does enterprise do? Who does enterprise serve for?

2 The external assessment :

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Evaluating external factors to control external opportunities and threats effected

enterprise External opportunities and threats include socio-economic political

technological competitive trends and events which will be able to benefit or damage

to an organization in the future The opportunities and threats are bevond the control

of individual institutions and therefore are called external factors

To evaluate external factors we use the following models:

PEST model is used to evaluate effects of 4 external factors on enterprise: Politics

Economics Socials Technology

- The 5 competitive forces model of Porter is to evaluate the effects of five forces :

barriers to entry customer power supplier power, substitute products and competitive internal industry

- To quantify the influence of external environment the competitive conditions in

the business, we use matrix evaluation of external factors (EFE) to summarize and evaluate external information of politics, economics, socials technology,

competitive Industry (the below table) The total number of important score reflects enterprise’s response to external factors

Matrix of External factor evaluation (EFE)

External factors Importance level Classification Number of

important score

The first factor

from 0.00 (not important) to 1.00 (very important)

Classification of external factors: | = the enterprise's response is at least 2 = reaction is medium, 3 = reaction is above medium, 4 = reaction is the strongest

To analyze the major competitors identify strengths and weaknesses of competitors -

competing picture matrix (CPM)

Competing picture matrix (CPM)

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factors tor level © Classifica | Important | Classifica | Important | Classific | Importe a ee SE

The first factor

Important level: importance of each factor to success of business is classified

from0.00(not important) to 1.00 (very important)

External factors classification: 1 = enterprise’s reaction is at least 2 = enterprise’ nn

° =

reaction is medium level 3 = enterprise’s reaction is above medium level 4

enterprise's reaction is strongest

Internal factors classification: | = weakest 2 = least weakness, 3 = least strength, 4

strongest

3 The internal assessment

Internal Strengths and weaknesses : business activities can be controlled within an

organization made particularly good or bad

Internal factor evaluation includes judgment and evaluation of strengths and

weaknesses in the business of enterprise including management, marketing, financial

accounting, production / implementation development research, information system

and relationships among them

To quantify the internal situation of the business we use the IFE matrix to summarize

and evaluate the important strengths and weaknesses of functional business units and

become a basis to determine relationship among them

4 Strategic evaluation and choice

Strategic evaluation and selection is to identify operation progress which may be

chosen so that enterprise can fulfill their assignment and objectives The current

strategies, objectives and mission of the enterprise as well as internal and external

control information will provide the basis for the formulation and evaluation of

practically chosen strategies

4.1 Strategic analysis:

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lo analyze the strategies we use matrix of strengths weaknesses opportunities and

threats (SWOT) This matrix is an important tool to develop four types of Strategic

strengths-opportunities strengths- challenges weaknesses-opportunities weaknesses and threats

List of opportunities Using strengths to take Overcoming weaknesses by

advantages of opportunitiesftaking advantage of opportunities

T

Using strengths to avoid Minimizing weaknesses and

To choose strategic position, we use SPACE matrix The axis of the matrix represents two aspects within the organization (financial strength FS and competitive advantage CA) and two external aspects of the organization are (environmental stability ES and industrial development ID)

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IS, FS = +1 worst, .= +6 best; CA, ES = -1 best, = -6 worst

Vertical axis coordinates; medium level of factor group ES and FS

Abscissa axis coordinates, medium level of factor group CA and IS

Vector linking from the origin of matrix to the above coordinates shows strategic position of enterprise

4.2 Strategic choice :

To select strategy we use planning matrix used to quantify QSPM QSPM matrix use the inputs of the matrix to evaluate external factors EFE and internal evaluation

matrix IFE and SWOT matrix QSPM Matrix is a tool that allows to evaluate

objectively alternative strategies based on internal and external identified influential factors

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AS: attractor score TAS: Total attractive score

Attractive score 1= weakest 2 = least weakness, 3 = least strength, 4 = strongest

External factors classification: 1 = Enterprise’s reaction is at least level, 2 = Enterprise's reaction is at medium level 3 = Enterprise's reaction is above medium level 4 Enterprise's reaction is at strongest level

Internal factors classification: 1= weakest 2 = least weakness 3 = least strength, 4

Long-term objectives must be quantifiable, measurable, realistic, understandable

arranged systematically, achievable conformable to units

The above are the concepts and tools to set business strategy for a business We use this theory to analyze the situation and set the strategy in the period of 2012 -

2015 for Agribank Hoang Mai Branch

OF AGRIBANK HOANG MAI BRANCH BUSINESS ACTIVITY

I CURRENT SITUATION OF BUSINESS ACTIVITY OF AGRIBANK HOANG MAI

BRANCH

1 Overview of Hoang Mai Branch of AGRIBANK

Agribank — Hoang Mai branch which is an I-level branch of Agribank was established on

16 August 2004 in accordance with Decision No.305/QD/HDQT-TCCB of the Chairman

of the Board of Agribank Their head office is located at 813 Giai Phong Street Hoang

Mai District Hanoi City

Fields of operation on Agribank — Hoang Mai Branch include :

- Capital mobilization of individuals, domestic and foreign organizations:

- Loan, guarantee:

- Domestic payment and fund;

- International payment foreign currency trading :

- Card services:

- Other financial services;

The main operation area of Hoang Mai branch is the southeastern market of Hanoi mainly in Hoang Mai district and other neighboring districts

As a member of Agribank, Agribank Hoang Mai possesses a reputable trademark linked with the biggest international and domestic payment network in Vietnam, provided with

modern technology and infrastructure the advanced transaction and management

procedure, and skillful management staffs The business activity of Hoang Mai branch has been being sustainably and efficiently grown, building up its reputation to customers

In addition, Agribank Hoang Mai frequently implements many significant policies of

Vietnamese Party and State including Policy on agriculture, rural areas and farmers

policy on payment without cash policy on controlling inflation and ensuring social security through agreements with local authorities and businesses Agribank Hoang Mai with our responsibilities of bringing the prosperousness to customers and contributing to the modernization of Vietnam agriculture commits to become a modern

bank playing the significant role in Hoang Mai district and southeast of Ha Noi

2 Organizational structure

- 9 specific departments: Department of human resources Department of general

planning Department of capital source Department of accounting financial Department of credit Department of international payment and foreign exchange trading Department of card and new products Department of internal audit Department of information technology

- 6 transaction departments directly under the organization system:

- Until September 30" 2011 there are 131 employees

3 Business network

Including one Head office and six directly under transaction office as follows:

- Head office of AGRIBANK — Hoang Mai Branch — 813 GiaiPhong Street- Hoang Mai District — Hanoi:

- Transaction office no.1 — 987 GiaiPhong — Hoang Mai District — Hanoi:

- Transaction office no.2 — 19 Dai Tu — Hoang Mai District — Hanoi:

- Transaction office no.3 — 282 Linh Nam — Hoang Mai District — Hanoi;

- Transaction office no.4 — 52 Nguyen Trai - Thanh Xuan District — Hanoi:

- Transaction office no.5 — 126 Nguyen Xien — Thanh Xuan District - Hanoi:

- Transaction office no.6 — 139 Tran Dai Nghia — Hai Ba Trung District — Hanoi:

- 10 ATMs 16 EDC machines with trade card payment in restaurants markets and entertainment areas in Hoang Mai, Thanh Xuan and Hai Ba Trung districts.

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4 Some basic criteria of Hoang Mai Branch

Table 1 — Some basic criteria of Agribank Hoang Mai branch

Unit : Billion dongs, %

2011* : 9 month of 2011 Resource : Financial reports and business reports

of Agribank Hoang Mai Branch 2008, 2009, 2010, 9 month of 2011

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4 Some basic criteria of Hoang Mai Branch

Table 1 — Some basic criteria of Agribank Hoang Mai branch

Resource : Financial reports and business reports

of Agribank Hoang Mai Branch 2008, 2009, 2010, 9 month of 2011

Growth of total asset

2008 -2011 2,500

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IH CURRENT BUSINESS STATE OF AGRIBANK HOANG MAI BRANCH

1 Major business operations

1.1 Capital mobilization (Table 2: Fundamental business criteria)

Capital mobilization is a traditional business activity and a base for other business activities of Agribank Hoang Mai Up to September 30" 2011 total capital mobilization of Hoang Mai branch has reached 2.089 billion dong and accounted for

250 of the toial capital mobilization in Hoang Mai district The market for capital mobilization includes mainly clients in Heang Mai district and other organizations with a big capital source

Up to September 30" 2011 Funding capital structure by individual customers 492

billion dong accounting for 24% economic organization 1.397 billion dong

accounting for 75% treasury 180 billion dong accounting for 9% other organizations

20 billion dong accounting for 1 %

Average capital mobilization growth in period of 2008-2011 gains 19% of the whole year in which population increases by 33%, economic organizations increases by 14%, treasury increases by 25%

At present Agribank Hoang Mai is applying 30 products of capital mobilization under different forms including savings call deposit and time deposit, certificate of deposit Especially Hoang Mai branch has mobilized many low-cost capital sources

by applying the payment linking with the Treasury and People’s Committee of Hoang Mai district and other big enterprises

GROWTH OF MOBILIZATION STRUCTURE OF DEPOSITS 30/09/2011 FROM 2008 -2011 Bindvidu Sy BW Crrorcation Hage Mar Treasury mB Other

1.2 Credit activities (Table 2 : Fundamental business criteria)

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Credit is also a traditional business sector of Hoang Mai branch Hoang Mai branch

chiefly focuses on some steel fertilizer agricultural products construction and hydropower enterprises in Hoang Mai district and other neighboring areas However facing hardships in the economic status Hoang Mai branch has decided to remain

liabilities at reasonable rate to restructure the account outstanding by retrieving non-

production account in order to invest in efficient enterprises specializing in agriculture

industry

Up to September 30" 2011 the outstanding loan has reached 1.589 billion accounting

ror 20% of total outstanding loan in Hoang Mai District At the end of September

2011 outstanding loan structure distributed by customers includes household

production loan and individual valued at 170 billion dongs accounting for 11%: enterprise 1377 billion dong accounting for 86% other loan has reached 42 billion

dongs

Regarding credit quality under standard debts keeps increasing By 9/2011 under standard debts of the branch has accounted for 4.2 % of total debts higher than

industry average index (3.1%) On one side, this is resulted from the common

economic situation On the other side, the branch has tightened credit policy and on its way to establish risk management process, ensuring healthy growth of credit activities

GROWTH OF CREDIT Structure of credit by term

15089 E shortLtem — RBmiđand long term

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1.4 Domestic payment and funds (Table 2: Fundamental business criteria)

This is an important service section in banking activities This service continuously increases and contributes over 3% into the total profits of Hoang Mai branch,

providing customers with many utilities With the biggest payment network in

Vietnam and modern technology, the domestic payment and fund service has been becoming the most competitive service of Agribank at the lowest cost and shortest duration

1.5 Guarantee activities (Table 2 : Fundamental business criteria):

Guarantee contributes about 3% into the common profits of Hoang Mai branch The major products of this service include bid security payment guarantee and contract performance guarantee Some construction companies in Hoang Mai district is market

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of this service Guarantee turnover tends to not change therefore Agribank Hoang

Mai needs to research and apply solutions so as to develop this service

1.6 Card service (Table 2 : Fundamental business criteria): :

Card service is carried out at Department of card and new products and 6 transaction

departments Up to September 30" 2011 Hoang Mai branch has issued 24.240

domestic cards 200 international cards and is the bank which has the biggest market

share of 32% on the whole district In order to obtain this achievement Hoang Mai

Dranch actively co-ordinate with Hoang Mai districVs Social Insurance People’s Committee in issuing cards for people who receive budget-based salary co- coordinating with these organizations to pay salary via cards In order to ensure

utilities for customer using cards Hoang Mai branch continues to buy new ATMs EDC machines increasing the total number of ATMs, EDCs up to 26 machines which are placed at public areas in Hoang Mai district Agribank Hoang Mai also focuses on freeing the issuance of international cards for Director of client companies of Agribank Hoang Mai Currently, the efficiency of card service is not high because people especially suburban people, are not familiar with using cards However with the development trend, holding a large amount of card market share in the future, will

be bring Agribank Hoang Mai chances to exploit card service and make big profits

from this service

1.7 Other products/services (Table 2 : Fundamental business criteria):

Other services are also carried out at the Department of card and new products, transaction Departments Hoang Mai tends to provide high-tech products as well as other modern technology — compatible products, including Payment connection internet banking, Mobile banking, Home banking Bill payment, Ticket purchasing online Because of their convenience these services are likely to replace some traditional services Hence, in spite of low proportion in the general profit, Agribank Hoang Mai remains priority on developing these services Up to 30" September 2011 Hoang Mai branch has applied 12 services integrating modern technology attracted

nearly 3.600 individual customers and more than 320 organization customers, leading

the diversification in products/services category meeting customer demands maximally

2 Results from business operation of Hoang Mai Branch of AGRIBANK

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Table 3 — Income proportion and structure

Unit Billion dongs %

of Agribank Hoang Mai Branch 2008, 2009, 2010, first 9 months of 2011

Ill ANALYZE BUSSINESS ENVIRONTMENT OF AGRIBANK HOANG MAI BRANCH

1 Analyze external force :

1.1 The general business environment

Agribank Hoang Mai operates mainly in Hoang Mai district a new district in the

southeast of Hanoi city Operation activities of Hoang Mai branch shall be strongly

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affected by outside factors In this project we pay much attention to factors that

Strongly affect business activities of Hoang Mai branch so as to identify control the influence and present reasonable responds In accordance with PEST pattern we have divided impact factors into 4 main types including politics-law economy society and

technology

- Political and legal factors:

~ Political factor: Vietnamese politics is stable which is advantageous for the

development of Hoang Mai branch in specifically and the Vietnamese economy in

generally The politics is stable: therefore enterprises focus on their production and

business activities attracting foreign investment capital decreasing threats of

terrorism, strike preventing business and production activities of enterprises and

banks from many risks

+ Legal factor: Legal corridor for banking sector has been amended to become Stricter, clearer, and more suitable with international common practice and standards creating healthy business conditions, minimizing risks in banking sector However, banks shall encounter some obstacles when altering their operation in accordance with changes in new stricter banking policies and standards, including regulations on legal capital of the bank, regulations on mobilization and loan ratio (Circular No 13/TT- NHNN and Circular 19/TT-NHNN) policy on currency and fiscal year restriction,

policy on restructuring bank system (Resolution No.11/CP) which are continuously governed by the Government aiming at the stabilization of macro-economy and

compliance to international treaties and commitments agreed by Vietnam

- Economical Factors :

+ The growth of GDP and economic trend:

Hanoi in the period 2008-2011 remains relatively high growth rate of 9% in comparison with national GDP of 6.5% regardless of unstable status of the macro- economy GDP in first nine months of 2011 of Hanoi increases by 9.4% compared to the same period of the previous year Specifically industrial production increases 12.7%: agricultural forestry and marine production increases 4.3%, service and trade Value increases 4.7% Foreign economic sector still has the highest growth rate of

26% in first nine months of 2011 Non-state economic sector grows 22% while large- scale state-owned economic sector grows at the lowest rate GDP growth is providing

banks including Hoang Mai branch with lots of development opportunities

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are encouraged to develop Therefore export turnover of first nine months of 2011 of

Hanoi increases 26.2% compared to the same period of which agricultural products

are dominant Agricultural forestry and marine production in first nine months of

2011 increases 4.3% This is also an advantage for both VBARD and Hoang Mai

branch in building up the agriculture-centered orientation which is the major sector of

the economy

The resolution No 11 decides to restrict investment in non-production industries real estate securities and gold trading Securities and housing market continues to decrease while non-performing loans rapidly increase directly impacting operation of some banks and might cause general impacts on Banking industry

Cutting public investment restructuring groups and state-owned corporations are

solutions given by Resolution No 11 Low-developing banks shall face the risk of

being merged or disintegrated: Groups and State-owned corporations focus on investing in significant business sectors and capital decomposition in auxiliary business sectors, which is orientation of the Government There are new opportunities for Banks to become stronger and more professional finance corporations, ensuring

the competiveness when financial barrier of Vietnam is removed in 2011 in

accordance with WTO integration commitment of the Government

+Inflation and interest: The inflation in first nine months of 2011 reaches 22.43% in

comparison with the same period of the previous year ranking the second for 10

recent years (since 2008) The inflation tends to decrease thank to the policy on currency restriction and synchronous solutions of the Government However the inflation still strongly affects the economy in generally, and banking system in specifically The capital mobilization of banks encounter many obstacles because

many customers do not desire to store domestic currency mobilized interest is kept at the ceiling rate of 14%.Hoang Mai branch should enhance the competition; remain the stable capital source and liquidity security In addition credit restriction is applied to

limit the inflation increasing lending rate (18-19%/year) many enterprises operate

inefficiently due to the shortage of capital source and increasing cost for lending rate Real estate and securities market with poor liquidity decrease Non-performing loan

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continues to increase up to 3.1% up to June 2010 and tends to reach 5% in the ending

of 2011 Banks have been facing credit risks and liquidity security,

= Export and import turnover and local currency stabilization:

Export and import turnover in Hanoi during the first nine months of 2011] have

considerable growth rate: import and export turnovers of 22.6% and 18.1% respectively have created favorable conditions for Agriculture and Rural

Development Bank - Hoang Mai Branch in the development of export and import payment services However high inflation trade balance deficit low foreign exchange

reserves have been causing great pressure on local currency The local currency

depreciated 6.3% in 2008 10.7% in 2009 9.6% in 2010 and is facing pressure of continual depreciation The State Bank has implemented flexible exchange rate policy increased activities to stabilize the foreign exchange market and gold market, however the pressure of local currency depreciation still exists The foreign exchange transaction finds it more difficult Enterprises and banks are facing risks of exchange rate for signed import contracts and foreign currency loans by the due date

- Social Factors:

+ Population scale and personal income: Hanoi has a population of 6,758 thousand until 6/2011 ranking the second largest city in population in Vietnam The average income per capita in Hanoi has been steadily increasing every year and it is the city with highest GDP per capita in the country and the living standards of people have

been improved remarkably These are advantages for banks in the development of

personal finance services especially as the rate of population using bank service is still low and the restrictions of the use of cash is imposed by the Government

+ Intellectual level of the people: Hanoi is also the city obtaining the highest intellectual level of the people in the country Banks are facing more difficult customers who are more sensitive to interest rate and require better service quality Therefore, banks are required to improve their service product quality and expand business activities

+ Population movement tendency to new urban areas: The growth of industrial zones and new urban areas in Hanoi outskirts has made population movement to these areas Hoang Mai District the based branch office has seen high urbanizations speed

rapid increase in enterprise quantity and population that creates opportunities for

banks operating in the area

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- Technological Factors:

Information technology in Vietnam is now developing very fast The application of

information technology to life and business activities has become widespread:

websites electronic transaction online trading Banks are investing in technology

to improve and renovate their transaction procedures product distribution forms

especially development of new products A wide range of high tech applied products:

high tech linked products have been made creating ultimate convenience for users such as: card automatic bank home-banking mobi-banking SMS banking invoice payment The significant usage tendency of online products electronic products

replacing traditional products requires banks to find technology solutions to continuously improve and renovate products enhance competitiveness and meet the

market demands

1.2 Banking business environment

In order to analyze the sector business conditions we use Michael Porter five force

model including 5 main factors: Threat from new banks power of suppliers

bargaining power of buyers threat from substitute products and internal competition

- Threat from new banks :

Threat from new banks is dependent on industry attractiveness and entry barriers

Banking is a considerably attractive to investors However in short term threat from new banks is low due to entry barriers in banking sector as well as the overall impacts

of global and Vietnam economic crisis

For foreign banks: In 2011 banking sector is completely opened in accordance with commitments in the process of WTO integration However, as the downturn of global economy, instability of Vietnamese economy high entry fees in banking sector,

foreign investors have to consider establishment of banks in Vietnam Therefore foreign bank entrants in short term is not considerable However, with the amount of

53 foreign banks having representative offices in Vietnam and having their entity contribution in the local commercial banks the number of 100% foreign banks will

certainly increase in the future

For local banks: The government temporarily ceased applying for new bank

establishment licenses since August 2008 In addition barriers to entry have been

raised higher including legal = capital shareholder regulations management

mechanism However these things will not prevent qualified enterprises from

- Power of customers:

The high threats cf substitute products and intensive competitiveness inside the banking industry cause the increasing negotiation power of customers

Currently the branch has nearly 5.000 customers include over 1.000 corporates and

nearly 4.000 individual clients using the products and services of deposits loans and

other services

Negotiation power of customers is different due to the difference in products Capital mobilization enables customers to have high negotiation power while for borrowings service, the customers’ negotiation power depends mostly on banks Moreover customers with large scale and reputation will have higher negotiation power, even in case of fund raising while small banks are nearly unable to negotiate Therefore banks continuously improve their products, segments, market segments, aiming at offering products and services meeting all demands and requirements of customer and optimizing their own profits Due to the increasing negotiation power of customers profits of banks tend to decrease

- Threat of substitute products

Substitutes shall limit the bank’s profits due to the share of market share The main

substitutes of the bank include insurance securities gold market, and real estate etc For customers who are organizations, the risk that customers use products substituting the bank’s products is not high because the shift from cash deposit to other business sectors is relatively difficult On the other hand one - channel securities helps enterprises mobilize capital that is declining on the market today In Vietnamese financial market 80% of enterprises” business capital is funded by commercial banks and financial institutions

For individuals the risk of using products substituting the bank's products is relatively high The habit of using cash and the easiness of changing to carry business

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on other sectors are reasons for moving to use substitutes if the bank’s products are no

longer attractive On December 2010 the mobilization interest rate of 14% was not attractive enough to hold individual depositors and they have turned to gold

securities and real estate trading etc The rapid decline of the bank's raised capital

forces some banks to increase the interest rates to 18% involving the increase of

general interest rates The State Bank had to inject capital to the market and require banks to reduce the interest rates to avoid negative impacts on the economy

The internal industry competition

The banking industry is growing rapidly both in number and size of property In 2006 there were only 78 banks while at the end of 2011 101 banks are licensed to operate

The total property of the industry has increased double times and reached 2.690

trillion VND at the end of 2010

The internal competition is increasingly fierce Although the state commercial banks still occupy the main market share with the proportion of about 50% the market share tends to be reduced year by year The non — state joint — stock commercial banks are considered to have more dynamic and effective operation and try to rising market shares The foreign financial institutions such as HSBC, Citi Bank Standard chartered, and ANZ bank, etc with the advantages of technology, superior

management and service quality continue to expand the network and increase the operation scope and they will be the heavy competitors in Vietnam’s financial market

At the end of 2011, there are 390 credit institutions and their branches operating with over 1.500 transaction centers in Hanoi Each ward has 1.5 transaction centers on average The local banks compete with each other in all respects such as interest rates service quality, network and charges etc

Agribank Hoang Mai branch operating in the Southeast of Hanoi is also subjected to

the general competition pressures In terms of size area and customer market the

direct competitors of Agribank Hoang Mai are branches of large banks in the same area such as the BIDV Southern Hanoi branch the Vietinbank Hoang Mai branch: With more advantages than small banks in capital, interest rates network and brand reputation the branches of the state commercial banks are competing directly with cach other to attract large customers with strong financial potential The branches of other banks including Vietnam Technological and Commercial Joint Stock Bank

Vietnam Export Import Joint Stock Bank Asia Commercial Joint Stock Bank etc located in the southeast of the Ha Noi are competitors but at lower intensity.