G1_00213 BUIDING UP THE BUSINESS STRATEGY IN THE PERIOD OF 2010-2014 FOR VIETNAM PROSPERITY BANK - VP BANK XÂY DỰNG CHIẾN LƯỢC KINH DOANH GIAI ĐOẠN 2010-2014 CHO VIỆT NAM NGÂN HÀNG THỊNH VƯỢNG - VP BANK

G1_00213 BUIDING UP THE BUSINESS STRATEGY IN THE PERIOD OF 2010-2014 FOR VIETNAM PROSPERITY BANK - VP BANK XÂY DỰNG CHIẾN LƯỢC KINH DOANH GIAI ĐOẠN 2010-2014 CHO VIỆT NAM NGÂN HÀNG THỊNH VƯỢNG - VP BANK

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM |

CAPSTONE PROJECT REPORT

BUIDING UP THE BUSINESS STRATEGY IN THE

PERIOD OF 2010 — 2014 FOR VIETNAM PROSPERITY BANK — VP BANK

Group Number: 10 Student's name:

Vu Truong Giang Duong Thi Lan Phuong Nguyen Trung Thanh Pham Thanh Trung

HANOI 2011

LIST OF FIGURES, CHART, TABLES

Figure 1.1 The task of strategic management Figure 1.1 The task of strategic

management

Figure 1.2 Strategic management process

Figure 2.1 Organizational structure of the VP Bank

Table 2.2 The main targets of VPBank 2006 — 2010

Table 2.3: Some macro-economic targets in the period of 2006-2010

Table 2.4 The main indicators of VPBank compared with the others in quarter 2

of 2010

Table 2.5 Competitive Image Matrix

Table 2.6 External factor evaluation matrix (EFE)

Bang 2.7 Internal factor evaluation matrix

Table 3.1 Table of oriented targets of VPBank to 2015

Table 3.2 SWOT matrix of VPBank

Table 3.3 Table of SPACE matrix to operation of VPBank

Table 3.4 Table of QSPM of VPBank

TABLE OF CONTENTS

Introduction

1.1 Reason for choosing topic

1.2 Object and scope of research

1.3 Purpose of research

1.4 Research Methodology

1.5 The main structure of Assignment

CHAPTER I: THE BASIC THEORIES OF STRATEGIC

MANAGEMENT APPLIED IN THE BANKING SECTOR

1.1 The concept and process of strategic management:

1.1.1 The concept of strategy

1.1.2 Strategic Management

1.1.3 Strategic management process

1.2 The order and content of business strategy

1.2.1 Defining the functions (defining business mission) and strategic business objectives

1.2.2 External environment analysis

1.2.2.1 Macro environment and banking activities

1.2.2.2 Sector Environment and the banking activities

1.2.3 Internal environment Analysis

1.2.4 SWOT matrix

1.2.5 SPACE Matrix

1.2.6 QSPM matrix

1.2.7 Selecting the optimal strategy

CHAPTER 2: BUILDING BUSINESS STRATEGY (2011-2015)

FOR VIETNAM PROSPERITY BANK-VPBANK

2.1 Overview of Vietnam Prosperity Bank-VPBank

2.1.3 Organization of personnel

2.1.4 The main business areas of the VPBank

2.2 Current situation of the VPBank in the period of 2006 - 2010

2.3 Elements of the external environment affecting business operation

2.3.1 The impact of macro environment

2.3.1.1 Economic and political environment

2.3.2 The impact of the sector environment and monetary policy

2.3.3 The competitive environment and competitive image matrix

2.3.3.1 Competitive Environment

2.3.3.2 Competitive image matrix of VPBank

2.3.3.3 The potential competitors

2.3.3.4 The alternative products

2.3.4 External factor evaluation matrix (EFE)

2.4 The impact of internal environmental factors on business

2.5.4 Threats of VPBank

CHAPTER 3: SOLUTION TO STRATEGY

IMPLEMENTATION IN THE PERIOD (2011-2015) FOR

VIETNAM PROSPERITY BANK (VPBANKk)

3.1 Business objectives of the Vietnam Prosperity Bank

3.1.1 Functions and tasks

3.1.2 Short-term objectives

3.1.3 Long-term objectives

3.2 Building business strategy for VPBank until 2015

3.2.1 The main targets

3.2.2 Analysis of business strategy

3.2.2.1 SWOT matrix analysis of VP Bank

3.2.2.2 SPACE matrix analysis to operation of VPBank

3.3 Identification of the main strategy

3.3.1 The first strategy

3.3.2 The second strategy

3.4 Analysis of Quantitative Strategic Planning Matrix (QSPM):

3.5 Solutions to strategy implementation

3.5.1 Solutions to the development of human resources

3.5.2 Marketing Solutions

3.5.3 Technological Solutions

3.5.4 Solutions to organizational restructuring

3.5.5 Develop organizational culture

Introduction:

1.1 Reason for choosing topic

Market economy and trend of internationalization of most sectors offer

opportunities and challenges for all enterprises in the world In order to take proper steps in the business, managers of each enterprise must have proper knowledge and

skills of management and strategy planning This issue is crucial for the success or

failure of the enterprise when competition is becoming fierce and its scale has not been limited in each region

Like other enterprises, Vietnam Prosperity Bank (VPbank) have experienced and suffered effects of world recession In orser to take strong steps for bringing success, we chose the topic "Building up the business strategy in the period of 2011-2015 for Vietnam Prosperity Bank-VP Bank."

1.2 Object and scope of research

The object of research is the business strategy of the Vietnam Prosperity Bank -VPBank The scope of research is business activities of the VPBank which is compared and collated with that of other competitors within activities of VPBank 1.3 Purpose of research

The purpose of the research assignment is systematizing and generalizing

theoretical issues of business strategy, analyzing business status and current business strategy of the VPBank, then proposing solutions to complete the business

strategy in the period of 2011-2015 in order to make VPBank become one of the biggest retail banks in the banking system

1.5 The main structure of Assignment

Besides the introduction and the conclusion, our group § assignment includes three

CHAPTER I: THE BASIC THEORIES OF STRATEGIC MANAGEMENT APPLIED IN THE BANKING SECTOR

1.1 The concept and process of strategic management:

1.1.1 The concept of strategy:

Johnson and Scholes: "Strategy is the long-term direction and scope of an organization in order to gain a competitive advantage through formatting its

resources in a changing environment, to meet the needs of market and satisfy the expectations of stakeholders "

Business strategy is a general long-term plan or a general action plan for deploying resources to achieve the planned objectives of the business ensuring compliance with environmental change

"Strategy of a bank is a comprehensive and long - term program of activities

in order to create a certain development of that bank, is a pre-commitment to the

basic and thorough goals that a bank should achieve and important resources allocation to achieve those goals in the future operating environment "( Banking Management and Business coursebook - Banking Institute - 2002)

1.1.2 Strategic Management:

Strategic management is a systematic process of strategy building,

developing, control and evaluation in order to achieve goals set by business

The tasks of strategic management: Consists of five tasks that are closely related to each other and are described as follows:

Figure 1.1 The task of strategic management

Improve change tf necessary

huplem ent and operate chesen

strategies

impreve change 17

necessary

Evaluate,

mplement, micniter and

adjust

Source: In according Ss to "Five tasks of strategic management", Strategic mi eS &

Management coursebook - Statistical Publishing House, 2009)

1.1.3 Strategic management process:

Strategic management process includes commitments, decisions and actions that companies need have to achieve strategic competitive advantage, sustainable competitive advantage and above-average return

Strategic competitive advantage is an advantage a company gains when

building and implementing a strategy which offers value for the company

Sustainable competitive advantage is an advantage a company gains when developing a strategy which its competitors can not have Sustainable competitive

advantage creates the advantages that the current competitors and even potential competitors could not gain

Above-average return is profit exceeding what investors expect to get from

other investments of similar risk

Figure 1.2 Strategic management process:

Action

Intermal envirormment

External

environment

Strategic

intents and tasks

Business level Dynsmic Corperste- Corperste structure

24 strategy competition level governance snd centrel

Source: In according Ss to " Strategic management vs & P process" - the Strategic 8

Management Coursebook - Griggs University)

1.2 The order and content of business strategy:

Business strategy building is the process of identifying the tasks, the basic

goals of business activities of enterprises by the best methods to implement those goals and tasks

The order and content of the strategy include:

Defining the vision, mission and goals: Indicate what the vision and mission

of the enterprise are? Where the current position of enterprise and its desired location in the future are What its long-term goal is?

- Assessing the external environment: This includes information collection and assessment of macro environment and sector environment

- Assessing internal environment (internal sector environment), including

information collection and assessment of internal environmental

- Analyzing and choosing strategy

1.2.1 Defining the functions (defining business mission) and strategic business objectives:

Business Mission:

The business mission of a bank is its purpose of business, the reason for its creation, survival and development

The first proper business mission is customer orientation because as a

perfectly logical reasoning, customers are people who decide the existence of the bank and only they are willing to pay for the services the bank provides The success or failure of customers affects the business results of the Bank This one

depends on its ability to control and maintain relationships with customers

Strategic Objective:

Strategic business objective is the specific states or results that the bank desires to achieve in pursuit of its business mission in a relatively long-term period

of operation

Target defining is a crucial step in the strategy formulation process Because

the right objective determining will enable the right orientation of strategic actions that determines the next steps of the strategy formulation process as well as implementation Its objectives is also the basis of strategy evaluation and adjustment

Objectives when building must meet the requirements of SMART (Specific, Measurable, Achievable, Realistic and Time)

Strategic objectives of banking activities can be classified as follows:

- Quanlitative objective: means a pre-commitment to results shown by the specific properties that a bank needs to achieve after each period of business, such as

its specialization, product and service quality, reputation, position on the market

- Quantitative objective: Shown in the target groups:

+ Profitability: ROA, ROE

+ Sales, scale of operation: loan or mobilising sales, the number of new

facilities, number of staff, number of customers, number of account

+ Market dominating objectives: market share ,

1.2.2 External environment analysis:

External environment is the factors that may affect the performance of the

business objectives desired to achieve Analyzing the external environment includes

macro environment and sector environment analysis This division significantly

facilitates the importance identifying of factors which have different levels of impact on the operation of the bank

1.2.2.1 Macro environment and banking activities

Macro environment affects all sectors of business, but not necessarily in a

certain way, including: (1) economic environment; (2) the political, legal environment; (3) sociocultural environmental; (4) demographic environment; (5) technological environment; (6) the global environment These above factors impact

on the banking sector as follows: |

- Economic environment: This factor have the greatest impact on operation objectives and business results of the Bank It affects the ability to create value and

income of the bank Therefore, this factor should be specially focused These are factors influenced by stages of economic cycle, inflation rate, GDP growth rate,

prospects of the businesses using bank capital, transforming structure among

economic arcas, the degree of price stability, interest rates, exchange rates, balance

of payments and foreign trade

- The political and legal environment: should always be carefully analyzed

because the nature of the bank is a financial intermediary and its activities have an important influence on the national financial system The banking sector is also

under more strict control of the state than other sectors The monetary policy of the government also needs to be constantly interested in the analysis process

- Sociocultural environment: includes many issues that are little changeable, lasting, and of great value in strategic analysis such as the consumption culture, routine use of banking services during the life, saving practice A business strategy which is not consistent with socio-cultural factors will surely fail

- Demographic environment: includes population size, age structure, geographical distribution, education, income, ete that affects the Bank's objectives especially the identification of customers, recruitment, etc

- Technological environment: Among banking activities, technological

factors become disruptive factor in competition So it is necessary to grasp new

technological trends in order not to be left behind and lose competitive advantage

- Global Environment: Due to the globalization trend of the economy leading to regionally or globally economic integration Therefore, it is necessary to

track and grasp the trends of world economy, detect potential markets, explore the evolution of politics and economy by the new technology information and

experience of international business

1.2.2.2 Sector Environment and the banking activities:

Sector environment is a series of factors directly affecting the bank as well

as its competitive and reaction actions The sector enterprises are influenced by

their own micro environment including: (1) competitors, (2) customers, (3) suppliers, (4) potential competitors, ( 5) alternative products In banking sector,

these factors may be shown as follows:

- Competitors: with the trend of loosening regulation that creates increasingly competitive pressure among banks to each other as well as among other financial institutions such as insurance and finance companies,etc Level of

competition depends on number of financial institutions participating in the market,

the growth of sector, trend of cost and position of the bank Therefore, when

analyzing the competitors, it is necessary to pay attention to some aspects such as what they want to reach, what they are doing and cari do, how their influence the market and what their strengths and weaknesses are?

- Customers: a factor determines the survival of banks in competitive environment For banking activities, there is no consistency between customers

because they can be both a supplier of operating capital and people who use the funds and other financial services When analyzing customers should pay attention

to: the trust of customers, relationship history with the bank, loyalty, their attitudes

to banking services, bargaining and paying power, the understanding of process and service, capability of scale investment, income and business stability, interest sensitivity, etc

- Suppliers: Are those who supply products and services for the bank For

banking activities, suppliers sometimes are the customers also that is special for

this sector The bank purchases products from suppliers but sometimes resells its

other services When analyzing suppliers, it is necessary to pay attention to the

objects sending the money to the bank This is the important thing creating

sustainable development and competitive advantage for the bank

- Potential competitors: In the future, operational boundary between banks and financial institutions could be erased and exist mutual penetration of the

services provided for customers Consequently, apart from curent competitors, it is

important to pay attention to the potential competitors in the future such as insurance companies, building societies, the distributors of wholesale and retail

goods, etc

- Alternative products: Among banking services, alternative services are

less than the other sectors, however, in some extent, it still appears, for example,

trend of the stock market, gold, real estate investment instead of saving deposits,

trend of self-financing by stock and bond issuance instead of borrowing

In summary, analysis of macro-environmental and micro-environmental

factors will allow enterprises to clearly identify what opportunities (O) must be

used up and what challenges, risks (T) offered by changes of the five forces must

be faced, from then build up appropriate strategies

Identification and evaluation of opportunity and risk from the external

environment affecting enterprises that will allow enterprises to build a clear business mission, determine the feasible long-term goals, design suitable strategies

and suggest appropriate policies in order to achieve planned objectives

1.2.3 Internal environment Analysis:

Internal environment analysis or actual condition and resource analysis of the

bank is the analysis of elements, systems inside the bank that is possible to mobilize

and control for business activities The concept of resources includes a variety of

different factors such as human resources, technical infrastructure, organizational

structure, policies of services, finance, Marketing, etc .It is necessary for the banks

to analyze carefully the resources to properly identify their strengths and

weaknesses to build the target system and the appropriate strategy to maximize

strengths and turn them into special abilities, on the other hand, limit weaknesses

from which to build competitive advantage and sustainable competitive advantage

* Elements of human resources:

- The quality of leadership and administrators, quality of staff in reference to their communication level, sense of responsibility, enthusiasm, ethics

- The atmosphere of internal personnel

-The policies of human resource recruiting, training, maintaining and

developing

- Experience of personnel, personnel incentives and encouragement, the extent of personnel transfering or job quiting, etc

- Human resource plays a crucial role that provides input and throughout the

entire process of strategic management, human resource plays a key role in all stages of strategy formation, implementation, and control

* Elements of Finance:

Possibilities of raising deposits and borrowed funds on the financial markets, possibilities of raising long-term capital and equity capital

Cost of capital compared to the whole sector and competitors, possibilities of

controlling costs and reducing the cost of capital

10

Liquidity, structure of earning assets, financial scale

Profit rate: net income, ROA, ROE, the possibility of adjusting the funding, sources, possibilities of calculating and reserving for financial losses

Relations with the owners, shareholders and investors

Effective accounting system serving for making plan of cost, price, finance

and profit

* Elements of facilities, equipments and logistics:

Head office and transaction, customer equipment, internal machinery,

equippment such as payment system, computer network

The system of banking information technology, papers, documents and other

material means serving for process of service production and distribution

* Elements of internal management organization:

Existing organizational structure, reputation and face of the bank

Organization of internal information system

System of internal control and audit

Organizational atmosphere and routine, strategic planning systems, capacity, level

of interest and enthusiasm of senior leadership, corporate culture

The ability to control and prevent risks in the banking business

* The field of management (Marketing activities)

The ability to research customer market and system of marketing information

The existing and future competitive position on the market Ability to

identify groups of target customers Diversity level of services and the development

of peripheral services, arising services, new services The quality of banking services, transaction network and distribution Marketing communication system,

credit interest rate, service fee Ability to assess customers’ satisfaction System of customer service and care The loyalty of customers Goodwill, credibility and reputation of the bank

From the analysis of the above resources that can help the bank realize its competitive advantage and sustainable competitive advantage

A bank is considered to have competitive advantage when its profit rate is

higher than the industry average And have sustainable competitive advantage when

it can maintain high profit rate in a long time

Core competencies are the resources and capabilities that can provide

competitive advantage

Core competencies (capacity to make a differente) is the power that allows banks to achieve superior efficiency, quality, innovation and customer

responsiveness (these are 04 factors creating competitive advantage) Therefore, it

is necessary to create superior value and achieve competitive advantage The bank which has the core competencies can make a difference of its products and services

or achieve a lower cost than that of its competitors By those achievement, it has created more value than that of its competitors and will get a higher profit rate than industry average

1.2.4 SWOT matrix:

SWOT is an abbreviation collection of the first English letters: Strengths,

Weaknesses, Opportunities and Threats This is an extremely useful tool helping us

understand the problem or make decision on organization, management and

business In other words, SWOT is a theoretical frame, based on that, we can review the strategies, determine position and direction of an organization, a company, analyze business proposals or any ideas related to the benefits of the enterprise In fact, the SWOT is used for building business plans, planning strategy, evaluating

competitors, surveying market, developing products and used in the reports of

research that are increasingly chosen by many enterprises

Through the SWOT matrix, basic strategies can be planned as follows:

SO Strategy: Use internal strengths of enterprises to utilize and exploit

opportunities of external environment

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WO Strategy: Take advantage of the external environment to minimize the weaknesses of the enterprise

WT Strategy: Overcome the internal weaknesses in order to reduce the threat of the external environment

ST strategy: Take advantage and enhance the internal strengths of

enterprises to overcome or reduce impacts from the threats of external environment

1.2.5 SPACE Matrix:

SPACE matrix is an effective tool to identify the determinants of the

strategic position of the organization These factors include:

Financial strength of the Organization (FS)

Competitive advantage of the organization (CA)

Environment stability of business (ES)

Attraction of banking sector (IS)

The process of building SPACE matrix includes the following steps:

Selecting the variables representing FS, CA, ES, IS

Determining the value of the variables FS, CA in accordance with the rule that | is the worst, 6 is the best

Determining the value of the variables ES, IS in accordance with the rule that -1 is the best, -6 is the worst

Calculating the average score of FS, CA, ES, IS

Adding up the points on the horizontal axis and marking the results, adding up the

points on the vertical axis and marking the results

Drawing the vector that is directed from the origin to the junction between the

vertical axis and horizontal axis

Show the results of strategy

Offensive strategy: Take advantage of strengths and weaknesses to overcome

opportunities and threats, make use of resources to promote growth

Defensive strategy: Focus on resources and specialization to overcome

weaknesses, limit impact of the challenge

Competitive strategy: Promote growth of products and services in order to make strong market penetration

Cautious strategy: Make exploratory growth, focus on sufficient resources to

maintain proper growth

1.2.6 QSPM matrix:

This is a strategic tool for the information and analysis that planners

complete through the steps of setting EFE, IFE, SWOT Matrix In order to review

and determine the optimal strategy to implement in practice QSPM matrix is built

based on six steps:

Listing the strengths, weaknesses, challenges from internal and external elements of the matrix

Classifying and evaluating each element suitable to matrix, analyzing internal and external factors

Analyzing and making assessment on established matrix such as EFE, IFE,

SWOT

Establishing the total attraction points for each factor by the method of increasing rating scale of from | to 4 that shows unattractive (1), quite attractive (2), attractive (3), very attractive (4)

Establishing the total attraction points in each row by multiplying the

classification point of step 2 with AS point of step 4

Making priority selection of strategy that has the highest total attraction point

1.2.7 Selecting the optimal strategy

Enterprises must select the optimal strategy because it is impossible to perform simultaneously all of the strategies or each one in such an undetermined

order, because it will take a lot of time, material resources, financial resources and human resources Therefore, it should be a choice to give a set of strategies considered to be optimum for development and take achieved benefit or harm, gain

or loss of this strategy into consideration There are many methods and tools

14

supporting the stage of strategy evaluation and selection, but in the scope of this assigment, it is only mentioned a tool supporting the process of effective strategy

selecting that is the QSPM matrix

Summary of Chapter |

Chapter 1 summarizes the theoretical basis, basic concepts and terms that

are: understanding of strategies and steps of strategy formulation, methods of

evaluation and analysis, synthetic evaluation method, proposed methods of strategy

and methods of optimal filtering strategy These above theories and methods will be

applied in building up business strategies for VPBank in the period of 2011-2015

CHAPTER 2: BUILDING BUSINESS STRATEGY (2011-2015) FOR VIETNAM PROSPERITY BANK-VPBANK

2.1 Overview of Vietnam Prosperity Bank-VPBank:

2.1.1 Introduction on VPBank:

The Vietnam Prosperity Bank (formerly the Commercial Joint Stock Bank of

non-state enterprises of Vietnam) Established under the license cumiber 0042/NH-

GP issued on August 12,1993 with the working time of 99 years by the governor of the State Bank of Vietnam

In 2010 under the plan of charter capital increasing passed on March 16,2010

by the shareholders and approved by the governor of the state bank VP increased

its chartered capital to 4,000 billion Vietnamese dong

Currently, VPBank has 160 nationwide branches and transaction offices

There are one headquarter, 46 branches and transaction offices in Hanoi

The northern area: 84 branches and offices

The central area: 31 branches and offices

The Southern area: 45 branches and offices

VPBank has 550 agencies for the payment of the Western Union money

2.1.2 The VP Bank's logo:

WW, VPBank

Ngân Hàng Việt Nam Thịnh Vượng

Its new logo is the stylized image of blooming lotus, typical flower of the Vietnamese people expressing the VPBank’s wishes of contribution to the sustainable development, prosperity and immortality of Vietnam country

With the motto "Action for your dreams" that is built from the elements: Professionalism, dedication, difference and simplicity

2.1.3 Organization of personnel:

Organization:

The Board of Directors consists of five people: one Chairman, two Vice

Chairman and other members of the Board

The Supervisory Board consists of three members

The Executive Board consists of eight people: One General Manager and

seven Vice General Manager

17

Figure 2.1 Organizational structure of the VP Bank (annual report 2010)

Personnel:

On September 10, 1993 When the VPBank was officially opened at 18 Le

Tianh Tong, the number of officials and employees is only 18 people Along with tke development and expansion of activitity number of officials increased

rGpectively

At the end of December 31, 2010 the total personnel of the VPBank system

is 2,000 people, of whom more than 94% having university degrees and

postgraduate degrees, the rest ones have other qualifications

In recognition of the quality of staff which is the strength of the bank Tye-efore, in recent years VPBank has always paid attention to improve the quality o* kuman resource management, organize regular training courses at home and

abroad in order to improve the professionalism of staff

2.1.4 The main business areas of the VPBank:

Mobilize short-term, medium and long-term capital of all organizations of all

Cconomic sectors and population in the form of term deposits, demand deposits by Vie:namese dong

Receive investment and development trust funds of the domestic credit

itst:tutions

Borrow from the state bank and other credit institutions

Making short-term, medium and long-term loans for organizations and id:viduals depending on property and possibility of capital sources

Discount commercial bills, bonds and other valuable papers

Contribute capital, associate and buy shares under current law

Implement payment services among customers

Perform foreign exchange trading and international payment, mobilize all

kinds of capital from abroad and other banking services in relation to foreign Country when is allowed by the state

Carry out brokerage and securities investment consulting, corporate finance advisory and underwriting

Provide services of investment, debt management and asset exploitation

2.2 Current situation of the VPBank in the period of 2006 - 2010:

In recent years, VPBank has always achieved sustainable and stable growth, even in the difficult context of global financial crisis This achieved result are due to the wisdom of leadership in strategic planning as well as solidarity, attachment and

efforts of all staff and officials This one is shown by financial indicators through years as follows:

Table 2.2 The main targets of VPBank 2006 - 2010 (Unit: billion VND)

(Source of 2010 annual report of VPBank)

Some main operational indicators

Unit: Billion dong

TOTAL ASSETS (Billion Dong) MOBILIZING CAPITAL (Billion Dong)

Through some main indicators of VPBank showing that VPBank’s operation

in the period of 2006-2010 has achieved strong growth in both operational size and

quality In term of VPBank’s size of total assets increased from 10.111 billion dong

in 2006 to 59.807 billion dong in 2010 that equivalent to 492%; The charter capital

of the VPBank has also increased from 750 billion in 2006 to 4,000 billion in 2010

Considering its operational quality, the mobilization of capital and loan has strongly grown By the end of 2010 loan outstanding is 25,324 billion, mobilizing capital is

48,719 billion These activities contributed to bring profit of 663.1 billion for VP

Bank in 2010 Although loan growth increased rapidly but the bad debt ratio of

VPBank has been better controlled since 2008 and by the end of 2010, the bad debt ratio of the whole system was only 1.2% 2010 was the year marking the clear

transition of VPBank, it changed into new face, its day of new brand identity was

formally organized and attracted the attention of the public In addition, VP Bank

has completed raising chartered capital to 4,000 billion dong, successfully issued

bonds to diverse more forms of capital mobilization, focus on developing products

and services In terms of economic difficulties, VWPBank has still achieved very

impressive results Consolidated profit reached 663 billion, 102% compared to the planned; total assets reached 59,807 billion dong which increased 32,264 billion

compared to that of 2009 (up 117%, respectively) Not only there was the strong

growth of financial capacity and scale but also the ability to control risk and the

liquidity of VPBank were also always guaranteed

Mobilization activities

In 2010, capital mobilization got difficulties because mobilizing interest began to highly rise at the end of that year and VPBank had to face competition from other banks In order to achieve targets of capital mobilization, VPBank has

opened many attractive promotions, at the same time VPBank has always ensured to

comply with the provisions of the state bank and adjusted the mobilizing interest

flexibly under market conditions

Structure of mobilizing capital

Unit: Billion dong

mobilization | previous to the

17.235 6.735

35%

14%

4.282 3.198

(Source: Audit report)

Capital mobthization from custemer:

we Implemented fin the same peried of 2005:

As of December 31Ÿ, 2010, loan outstanding reached 25,324 billion dong, an

increase of 9,511 billion compared to that of the same period in 2009 (respectively increased 60.18%,) and reached 110% as planned in that year

Regarding credit quality: Bad debt ratio of the entire bank is tightly

controlled, this figure is 1.2% 0.41% lower than that in 2009 and much lower than

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the average level of its sector that is 2, 5% Bad debt ratio of group 2/Total outstanding is 1.15%, 88 billion dong decreased compared to that by the end of

2009 (respectively decreased 0.14% )

Network development activities

Operational network of VPBank is quite large and present in most provinces

and cities nationwide By the end of December 2010, there was a total of 150

transaction offices in which there were 38 branches and 112 transaction offices In

2010, VPBank opened more 3 branches and 16 transaction offices, branches and

transaction offices of VPBank are in a convenient positions in business and in

developing economic areas In 2010, in order to implement the strategic objectives,

VPBank implemented standardization of branches and transaction offices

throughout the system by model of the modern retail bank

In addition to the core activities of the bank during the period of 2006-2010,

especially in 2010 VPBank made several strategic activities in order to put VPBank

at the top-five banking groups in the Vietnamese market There were some major activities as follows:

- Structure of organization and management: In 2010 the organizational

structure of VPBank continued to implement by the block pattern and be held more

and more perfect

- Utility product development: Includes groups of products for individual

clients and groups of products for business customers

- Card product development

- Electronic banking product Development

- Brand relocating: Since August 12", 2010, VPBank has officially

announced its new name: Vietnam Prosperity Joint Stock Commercial Bank, at the same time put the images identifying its brand new into use VPBank brand with the

motto "Action for your dream" is built from the elements: Professional, dedicated,

different, and Simple

24

By its efforts, in 2010 VPBank achieved breakthrough progress on many aspects, and this is shown most clearly in the its business results:

BUSINESS RESULTS OF 2010

‘Net profit / (loss) from other activities 71.058 19.810

Income from capital contribution, share purchasing | 12.696 7.966

Depreciation and deduction expense (63.157) (63.314)

Net income from business activities before 764.343 442.879

| provision expenses for credit risk

Provision expense for credit risk (119.303) | (75.180)

Provision expense for off-balance sheet commitments | (2.578) (3.656)

Current business income tax expense (159.819) | (89.067) Deferred business income tax

2.3 Elements of the external environment affecting business operation:

2.3.1 The impact of macro environment:

2.3.1.1 Economic and political environment:

The economy of Vietnam in the period of 2006-2010 is much volatile directly impacting on the operation of VPBank:

In 2006 Vietnam joined the World Trade Organization (WTO) International

integration of banking operation became urgent requirement than ever for the economy of Vietnam In the same year, Vietnam successfully organized the

economic forum of Asia-Pacific Economic Cooperation (APEC) that has had

tremendous positive impact on domestic economic-political situation

2007 is the year marking the important step in the process of the world economic integration of Vietnam Devaluation 13% of US dollar in comparison

with other currencies, the increase in oil and gold prices to record levels over the

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past 30 years, crisis of American Finance-Bank sector and other major economies that has had great influence on the development of the domestic economy, however,

the economy of Vietnam has still reached 8.5% growth, the highest level over the

In 2009, Vietnamese economy achieved growth of 5.32% This growth was remarkable when the global economy got difficulties due to the recession that led

the Vietnamese market to decrease At the end of 2009, the consumer price index

(CPI) increased 6.88 In 2009, the operation of banks are rather complex, especially

credit operation With the 4% interest rate support, credit operation of the banking system has suddenly grown since the second quarter In summary, the interest rate

support package of the government has had a positive impact to the banking system

that has made the credit increase and risk of bad debt in 2008 much reduce,

especially for non-state banks

In 2010, Vietnam well fulfilled the growth target but inflationary pressures

rose again at the last stages of that year Government continued to use the tighten

policy to control inflation Economic growth of 2010 reached 6.78% that exceeded the target set out by the parliament at the beginning of the year, inflation rose 11.75 compared to that of 2009 There were many difficulties in its operation but in 2010, its strong growth in the size of the credit institutions continued to be recorded The total assets of the system increased up to 28% Most members enhanced to expand

its network, invest and develop its products and services The size gap between the

leading joint stock commercial banking group with the state ones has been

shortened, along with the noticeable shift of market share seen

Besides the factors of growth, unemployment, balance of payment, inflation

is also one of the issues that largely impacts on the development of the economy In recent years, inflation of Vietnam is mostly of two numbers, exceeding the

permitted level for an economy like Vietnam’s, so the bank encounter difficulties in mobilizing capital

In order to mobilize capital, or prevent capital transfering from this bank to another one, it is necessary to raise mobilizing interest close to the change of capital

market But how much to reasonably raise that is always a difficult problem for each bank Inflation highly increases, then the state bank implement monetary

tightening to reduce the amount of money in its circulation, but demand for loans of

enterprises and individuals is very large, the bank can partly meet this demand for customers who have signed contracts or truly effective projects with allowed risk

level On the other hand, high increase in mobilizing interest rate and the lending rate worsens investment environment of the bank

Due to reduced purchasing power of money, high increase in gold and foreign currency price that makes the 6-month-term capital mobilization become really hard for each bank As the demand for medium and long term loans in recent years at each bank is very large that affects the liquidity of the bank, so term risk

and exchange rate risk are unavoidable

Due to high inflation, many enterprises and people implement transactions, direct payment with each other in cash, especially in condition of inflation but

scarcity of cash According to survey caried out by the World Bank (WB) in

Vietnam there is 35% amount of money circulating outside banks, over 50% of transactions through banks, of which more than 90% of the population do not implement payment through banks The amount of money circulating outside banks

is large, it is really difficult for the state banks to control the revolving cash flow,

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