G1 00282 Xây dựng chiến lược kinh doanh ngân hàng bán lẻ tại Ngân hàng Cổ phần Đầu tư và Phát triển Việt Nam (BIDV) – Chi nhánh Quảng Bình giai đoạn 2012 - 2017

G1 00282 Xây dựng chiến lược kinh doanh ngân hàng bán lẻ tại Ngân hàng Cổ phần Đầu tư và Phát triển Việt Nam (BIDV) – Chi nhánh Quảng Bình giai đoạn 2012 - 2017

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CAPSTONE PROJECT REPORT

TOPIC:

RETAIL BANKING BUSINESS STRATEGIC

BUILDING IN JOINT STOCK BANK FOR

VIETNAM (BIDV) - QUANG BINH BRANCH

Le Viet Hung — Member

HA NOI 2012

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THANKS

We would like to express our sincere thanks to teachers of Hanoi National University - HTC, as well as teachers of University Griggs United States who have provided us with knowledge and guidance to complete this assignment

We also would like to express our sincere thanks to leadership of BIDV Quang Binh who has created the best conditions for us to collect information and data to complete this assignment

There are some mistakes in this presentation due to limited time and space, we should be grateful if you give us more advice on this presentation for its completeness

Finally, we would like to wish our teachers in Hanoi National University - HTC, and the teachers of the university Griggs United States and leadership of BIDV Quang Binh health and success in work and in life

Quang Binh, October 1*, 2012

Group 10 Representative by

Nguyễn Đức Dũng

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Thanks

List, tables and annexs

Table 1.1: Strategic: management model Of F David .ccscosrcecccessssencssessensonsopensens 8 Table 2.1 Quang Binh's GDP growth rate .cccceeseesecsessesseseesessenseeseseenseneeues 26 Table 2.2 's Corebanking system of commercial banks in Vietnam 28 Table 2.3 Population by economic regiONn cccesessseeeeseeseesersereeceerenrenceerencees 29 Table 2.4 Labor working in ecONOMIC SECEOMS .scceessceeceecsesseeeceeseecseceeceecencees 29 Table 2.5 Commercial bank opreation network in the area <<<<< 33 Table 2.6 Fund mobilization market share of the Banks ín area 34 Table 2.7 Credit operation market share of the banks ïn area 35 Table 2.8 Income from services market share of the Banks ïn area 36 Table 2.9: Comparison of retail fund mobilization operation of BIDV Quang

Table 2.10: Comparision of retail credit operation in BIDV Quang with

€ÒHÌDG( TS aouoddidbitidetisirddiiixii66660124464051363046ãã640212k6513 1l80G4i4086sgoag 37 Table 2.11: Comparision of profits from retail operation in BIDV Quang Binh wÌlì £oiñ1i0 HE que daaẰỹaaadadaidddoddaigtiilibui125660056160466606365303:18866gi14 34066144016 37 Table 2.12 Com pPetitOr Matrix visscsissisesissscecsssnssccssravesacstaavsseveresinrerscentiaseneusnnrsenss 38 Table 2.13 Number of customers ïn BIDV Quang Bình . 5< 39 Table 2.14 Number of (supplier) depositors in BIDV Quang Bình 40 Table 2.15 Opportunities and threats for BIDV Quang Bìinh 42 Table 2.16 External factor evaluation in BIDV Quang Binh 43 Table 2.17 Credit activity period 2007-6/2012 sissssssisccessssssscsniosinssesvoiesnnsnasintnss 47 Table 2.18 Fund mobilization activifty period 2007- June 2012 49 Table 2.19 Retail banking operation as of June 2 Í2 ««- «<< ««sssss 50 Table 2.20 Performance efficiency of transaction ofÍIC€s <<<««« 52 Table 2.21 Strengths and Weaknesses in BIDV Quang Binh - 55 Table 2.22 Internal factor evaluation in BIDV Quang Bình 56

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Table 2.23 Internal Matrix — External Matrix (LE) sccccscsccsossssscssocccnscacencenesosanenns 59

Table 224: QSPM Croup SO wccrssssssnsscxerticcssncsvssscvsvererennnsenssonteonsisnnssencnncenneneennns 60 Table 2.25: QS PM Group ST oncssscnnancnnasinicienannconeneccnsennconeenonennumenennencans 61 TOIRKE lu 1 REI0ELefDTT Hỗ EaeseeediieidtittrểGUrrrrrểnnsennneorrarsossmvaeanasaiiire 66 Table 3.2: Strategic Implemenfation DFOC€SS Q91 99 x56 71 aNR ` duqqqqqqqqiqqdiitdiidgdiiiiuddoiiiiileti@GiidAK0NGAIQ0834aHã8i884a8a-8 76 Annex 1 Retail credit marke( share ørowÌi (A7Đ€K - S20 5166666556 76 Annex 2 Retail fund mobilization growth (argeẲ co G356 76 Annex 3 Retail network development targets cccisisscccsscsssssesvassnncxnansnsecerisaeseoanens 77 Anaex 4 Retail servie’ THYĐEEseeaaesennendditeavbeniiikadsesiskes4ssrSlSNGXUESA4E000530461/36I Tổ Sànne£ Š Prgfs tarYrgret rom rdoueeeearueaaraaaeoetoeeoenesenneeeenoansroesrroptee 78

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1.3.2.1 Matrix oƒexternal ƒactor evaluation (EF E) .« «<< <<+++ 14

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2.3.8 Internal factor ©eVA[Ht(fỉOH (TL F) G99 9505 6 55356 55

2.4 Synthesis SWOT matrix and QSPM in BIDV Quang Binh 57 241: SWOT Mii hciciinmumommaiiinnnnmnmummummeneanmuiinan oF

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VỀ GSP M 00000 00T Nụ 1111111 39 CORAL 03.2000 Mu 2214.11.11 "`" 63 STRATEGY SELECTION AND IMPLEMENTATION SOLUTION 63 3.1 Retail banking business development strategy in BIDV Quang Binh Dorfodl dGf 20122 1l caeaiesesssrenabarronditbriiiogtf0f00tf81 nenaaviarnsbsntoretrasnfietresySWDEESI 63

3.2.1 Selection of strategic plan group on the basis of SWOT and QSPM CYSTS gaaaddaaiaqtiiditddiiGGi4GI14G4lG6A4ã4035094616011604003040x 3x4 64 3.2.1.1 Establishment of strategic planning groups through analysis of

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1 Necessity and importance of topic

In this period, banking is one of the sectors that are under the influence of current international economic integration the most powerfully and clearest Integration can bring more development opportunities, but also brings many risks, threats and challenges for banking Vietnamese banking system currently has a network of branches throughout the provinces in the country In addition, more joint stock commercial bank have been established including 100% foreign-owned banks that makes intensity of competition in banking is fierce than before, especially for retail banking activities that is the strength of those banks What is a retail banking? Retail banking is banking services aimed at individual customers instead of enterprise customer group The major services of retail banking are savings

mobilization, consumer credit, business credit, households credit, deposits

receiving, payment account opening, personal guarantees, international transfering,

ATM, POS services using, international credit cards, IBMB, BSMS, In general,

there is not much differrence in products and services, but there is a significant difference in scale between retail banking and wholesale banking

In addition, banks also face vital issues such as: High inflation in 2012 and it

is considered that will increase in the next years; competition between banks on a stiff condition due to economic difficulty, loss-making and mass bankruptcy enterprises, lees fund mobilization from institutions and risky of loss-fund in lending So business strategy development in accordance with the characteristics of each bank, each period in order to exist and grow in the current environment becomes necessary need for banking That can reduce weaknesses, develop strengths to dominate the market and develop market share, improve competitiveness, expand and promote banking products and services

In order to overcome these challenges and take advantage of good opportunities, thereby improving their competitive position on the market, the banks must make appropriate business strategies for each period, each stage of

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development in accordance with global trends on principle of ensuring balance national interests with banking interests With striving for BIDV Quang Binh becoming top modern retail bank in Quang Binh province in 2015 as well as contribution in striving for BIDV becoming top morden retail bank in Vietnam and strengthening and improvement of status and competitiveness of the branch in banking financial market in Quang Binh, “Retail banking business strategic building

in BIDV Quang Binh period 2012 — 2017” is very necessary to lead BIDV be at the top of scale as well as quality of retail operation in Quang Binh province, and is the head branch of BIDV system in North Central Region That will contribute to improve business efficiency and help the branch to fulfill their goals as well as business plan that BIDV assigned while maintaining its position and BIDV Quang Binh is considered as a leader in banking in Quang Binh province, and is one of 16 head branches in BIDV system, has an important influence in banking system with

competitive advantage, fund market share, payment services, card services, auto

banking, credit as well as credit quality, ect It has an important contribution for economic development of the province during renovation period

2 Object, purpose of research and application competence

Object of research is problems of strategic building and implementation, that can apply to BIDV Quang Binh business operation analysis

Purpose of research is to analyze and evaluate operation status, from which to build retail product business strategy for BIDV Quang Binh period 2012-2017 and propose solutions for implementation of this strategy in order to put BIDV Quang Binh standing in the 10 largest branches of BIDV as well as a strongest branch in every sides, especially it has the largest market share in retail banking in Quang Binh and BIDV system

Research is implemented by data from reliable data sources of State Bank - Quang Binh branch, BIDV Quang Binh reports and with objective analysis and evaluation of problem, consistent with the practice as well as the general trend of society, so the applicability is very high

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Data source 1s the reports of BIDV Quang Binh, State Bank - Quang Binh branch, information from books, newspapers, internet, Statistical Yearbook of Quang Binh

Methods of descriptive statistics, analysis and synthesis are used to evaluate operation results of BIDV Quang Binh

Analysis techniques are used as follows:

- Model of five competive pressures of Michael Porter

- Using matrix to analyse EFE, IFE

- SWOT matrix, IE matrix and QSPM

4, Structure:

Chapter I: Theory basis for business strategy buding

Chapter II: Analysis of business status in BIDV Quang Binh

Chapter III: Strategy selection and implementation solution

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1.1.1 Concept of business strategy

In view of art business strategy:

- Alain Threlart said that "Strategy is the art that enterprises use to be hostile to competition and win ";

- Michael Porter said that "Strategy is the art of building a solid competitive advantage for defense."

These authors considered business strategy is the art to compete on market and develop business

In view of management category, business strategy is a form of planning

- G Arlleret said that "Strategy is the identification of the way and the means to achieve goals identified through policies";

- According to D Bizrell and the authors, “Strategy is a master plan leading or direction of enterprises to achieve desired target It is the basis for policy development and implementation methods ";

- Gluecl said that: "Strategy is a type of consistent, comprehensive plan and synthesizes the design to ensure that enterprise objectives will be done”

According to consensus combination view:

Business strategy is the art of activities coordination and control in order to achieve long-term goals of the enterprise";

Chandler thought that strategy involves the determination of basic long-term goals of the enterprise and selection of way or action process and allocation of essential resources and implementation of those objectives

In the enterprise: “Business strategy is an organizational design art of facilities

in order to achieve long-term goals of the enterprise and has relationship with the change of business environment and competition ”

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Another point of view: Business strategy is a series of commitments and actions that a company uses to win a competitive advantage by exploiting core competencies in a certain market

Purpose of business strategy is developed to make the difference between a company's position in relation to its competitors to position themselves, must decide whether to operate different way or perform different activities more than rivals 1.1.2 Basic features of business strategy

Business strategies determine the basic goals and business direction of the enterprise in each period clearly

Strategic direction is to ensure enterprise developing continuously and firm in constant fluctuating business environment

Business strategy ensures maximum fund mobilization and optimal combination

of exploitation, resources using of enterprise now and in the future, promoting the advantages and seizing the opportunity to gain the advantage in competition

Business strategy of the enterprise is reflected throughout the process continuously

Business strategy are offensive minded, win in the business market

Business strategies are usually built in a long period (usually five years or

more)

1.1.3 Role of business strategy

Business strategic building helps enterprise identify the purpose, its direction as the basis for all business activities of enterprise

Business strategic building helps enterprise understand and take advantage of business opportunities and have proactive measures to overcome risks and threats in

competitive market

Business strategic building contributes to improve efficient of resources using, enhance competitive position of enterprise to ensure sustainable development of enterprises

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Business strategic building creates a solid basis for policy development and decisions making on production and business in accordance with market fluctuations

1.1.4 Classification of business strategy

1.1.4.1 Strategy lead on costs

A series of actions to produce goods or services with acceptable features to customer with the lowest cost equivalent to the cost of rival characteristics that customers also accept

- These products are relatively standardized

- There are many features that customers accept

- The lowest competitive price

Cost saving actions:

- Develop efficiency equipment in term of scale

- Strictly control production costs and management costs

- Minimize cost of sales, research and development and services

- Develop efficient production equipment

- Control cost of the activities provided by outsiders

- Simplify production process

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- [hese are commonly as non-standardized products

- It is suitable when customers appriciate the difference more than the low price Competed risk of differentiation

-The disparity on price between products of a differentiation company and product of a company leading on costs becomes too large

- Until whenever different products will not be able to create value that customers are willing to pay more

- When having more experience, customers will have different perceptions about value of different characteristics

-Counterfeit goods, fake goods may be mimiced by different characteristics of company's products

1.1.4.3 Strategy of focus

Variety of actions need to be performed to produce goods and services to serve the needs of a particular competitive market segment

- Specific customer group - young people or older people

- Different segments of a product line - professional craftsmen and amatuer

- Different market areas - eastern area and western area

Types of strategy of focus:

- Strategy focus on costs

- Strategy focus on differentiation

In order to implement a focused strategy, companies need to implement a series of basic activities and support in complete salient way to develop and maintain competition and achieve profits above average level

Factors promote strategy of focus:

- Large companies can ignore small market (niche)

- A company may lack the resources needed to compete in wider market

- A company can serve a segment less effective than a large-scale competitors

- Allows companies resource-oriented in a number of value chain activities and

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Competitive risk of strategy of focus:

- A company with strategy of focus may be on the "losing focus" by competitors

- A large competitor can pay attention to the niche market of a company

- Popularity of customer in niche markets can be redirected to other similar products

of the broader market

1.2 Business strategy building:

evaluation, present goal

Table 1.1: Strategic management model of F.David 1.2.1 Define strategic vision and mission

Strategic vision refers to the future business direction of company "Where we will

go

- The market should be pursued

- The future focus on technology, products, customers

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- Type of management unit company ts being tried to create

The mission statement of most companies is to focus on current business activities " Who we are and what we do."

- [he current products and services

- Customer demand is being served

- [he capacity of business and technology

1.2.2 Analysis of external environment

- Economic impact on a company can alter the ability of its value and income

creating Four important factors in macro-economic environment are economic

growth rate, of the economy, interest rates, exchange rates and inflation rate

Technologycal environment:

- With a spread and diversity spatial, technological change affects many parts of society These effects mainly through products and tenological process and new materials Technology includes institutions, activities related to creation of new knowledge, knowledge transfer to output, products, processes and new materials

- Technological changes includes creation and destruction, opportunities and threats

- One of the most important effects of technological change is that it can affect the height of barriers to entry and reshape the sector industry structure radically

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- In the global spatial, technological opportunities and threats in macro environment have an impact on enterprises including by procurement or self- creation of new technology

Social cultural environment:

- {t relates to social attitudes and cultural values Because cultural values and social attitudes create society foundation, it often leads to change and condition of technology, politic, law, economy and population

- As technology changes, social changes also create opportunities and threats Political and legal environment:

- Political and legal factors also have a major impact on level of opportunities and threats from environment The main thing is the way which businesses can influence the government and the way that the government can affects them Constantly changing, this segment will cause a significant impact on competition

- Enterprises must carefully analyze philosophy, new policy relevant state management Antitrust law, tax law, sectors selected to adjust or priority, labor law are fields in which state management policies can affect the operation and profitability of the sector or of the enterprise

- On a global scale, companies also faced a series of political and law interest issues Natural environment:

- Geographic location also has no small impact on enterprise business status and results in the area

1.2.2.2 Business environment

Sector is a group of companies providing products or services that can substitute closely together Rigorous replacement means that products or services meet customer needs that are basically the same Sectors are very different in economic characteristics, competitive situation and future prospects for profit

Sector economic aspects and current competitive conditions as well as future expectation are as a basis to predict future profit to be low, average or excellent That is the appeal of sector

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The task set for administrators to be aware of opportunities and risks from the change of five forces acording to model of Michael Porter's five competitive forces for appropriate strategies building

Risk of potential competitor:

- This force includes compaies which are not competitive in sector, but they are able to do it if they want It is an important to identify new competitors may enter sector because they can threaten the market share of existing firms in sector

- Potential competitors will bring to sector new manufacturing capabilities The result is forcing existing companies in sector to become more efficient, more effective and must know how to compete with new properties

- The strength of potential competitors is a function of the height of barriers to entry, is costly factors make difficulty for opponents when they want to enter sector and even when they can enter, they will be placed at a disadvantage position The barriers to entry are: brand loyalty, absolute cost advantages, economies of scale, switching costs, government regulations and retaliation

Intensity of competitors in sector:

- The second force in five competitive forces model of Porter is the degree of competition between firms within a sector Because firms are mutual dependent in a sector, the actions of a company usually associated with the actions of the other company's response Rivalry is intense when the enterprise is being challenged by actions of other enterprises or the enterprise is aware of an opportunity to improve its position in the market

- The level of competition in sector depends on: sector competitive structure, demand conditions, high barriers to leaving

Pressure from customers:

- It is consideres as a competitive threat when they are in a position to require lower prices or better service in request (which can lead to increased operating costs) In contrast, when customer is weak, the company can raise prices and get higher profits

+ When providing sector depends on customers, because of a large percentage

of their total orders is customers’ one

+ When customer can switch between providers in the low cost, so it stimulates companies against each other leading to lower prices

+ When customer economic characteristics is to implement procurement from several companies at the same time

+ When customer can use the threat to supplies when they have ability of vertical integration, they use this ability as a tool leading to lower prices

- The relative power of customers and suppliers tends to change over time in accordance with the changing industry conditions

Pressure from suppliers:

- Suppliers can be viewed as a threat when they may push to raise prices or reduce input quality requirements that they provide to the company, thereby reducing company profitability Conversely, if supplier is weak that makes company have a chance to reduce prices and require high quality

Ability of the supplier requiring company depends on relative power between them and company The most powerful of suppliers provider when:

+ Supplier products are less likely to replace and important to company

+ Company is not an important customer to supplier, that makes supplier does not depend on company's sector and provider has little incentive to reduce prices or improve quality

+ Supplier corresponding products made are different to the level that can cause costly for company when changing from this provider to another provider In

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that case, company depends on its suppliers and can not make them to compete with

each other

+ Providers can use downstream integration threats to sector and compete directly with company

Risk of substitute appearance:

- Products of sector serveing customer needs similar to the sector being analysed

- Existence of close substitute products represents a competitive threat, limiting the ability of set high prices and limiting its profitability

1.2.3 Analysis of enterprise

In order to exist and develop, all organizations carry out activities related to

human resources, technical facilities, technology, finance, marketing and

organizational structure In each activity field, each organization has its strengths and weaknesses

Analysis and evaluation of internal environmental factors allows us to identify enterprise strengths and weaknesses The factor offers power for enterprise if it offers a competitive advantage for enterprise (the fields that has potential to perform better than existing and potential competitors)

In order to develop competitive advantage, it should be taken advantage of strengths One of important objectives of setting the strategy is to improve organization's weaknesses and change them into strengths and become the special abilities if possible

Analysis of internal environment is an important part, can not lack in strategic management In organization, internal analysis environment implemantation is not done well, perfect strategy will not be developed Conversely, if that analysis is done well, objective determination and strategic direction of the future will be carried out

Like external environmental analysis, internal environmental analysis must be process, analysis is done through contents such as: human resources capacity, technical facilities, information technology, financial capacity, marketing capability,

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Organizational structure level to identify the most essential strengths and weaknesses Of organization

1.2.4 Development of strategy plan

By external environment studying, opportunities and threats are identified, company can determine what may choose to do In addition, by internal environment studying, strengths and weaknesses are drawn, company will determine what they are capable of doing

On the basis of analysis and evaluation results of external environment and internal environment, strategic plan will be developed inproportion with company needs and environmental characteristics which company is oprerating

1.2.5 Strategy selection analysis

The next step is to analyze and select business strategy mainly based on the strategic plan was developed Company should evaluate several options corresponding ability can achieve the main goal Strategic plan can be created at different levels existing in the best way, best suited to the rapid changes of a global

competitive environment as a feature of almost all current sectors

In general, during business period, enterprises must always identify short-term and long-term goals for themselves Business strategy is the way to reach the goals 1.3 Strategy selection analysis techniques

1.3.1 Matrix

1.3.2.1 Matrix of external factor evaluation (EFE)

EFE matrix synthesizes, summarizes and evaluates key opportunities and threats

of external environment affecting enterprise, it helps strategic managers evaluate organization's response level to opportunities and threats, made the comment on external environment that causes advantages and difficulties for enterprise

EFE matrix building steps:

- Make a list of more than 10 elements of key opportunities and threats that have great influence on the success or failure of organizations in the business

- Marking from | to 4 for each element, each factor depends on level of the organization's response to factors, including:

+ - good response, 3- above average response, 2-average response, i- weak response

- Multiply weight of each element with its to determine number of points on importance

- Add total number of points on importance of all factors to determine total number of points of EFE matrix

No Main external factors Weight | Evaluation mark Total mark

IFE matrix building steps:

- Choose from 10 to 20 strength and weakness points

- Identify important factor (weight) for each factor from 0.0 - not important to 1.0 very important Total of factor weights make 1.0

- Identify score for each factor from | to 4, in which:

4 - great strengths, 3 - Small strengths, 2 - small weaknesses, | — great weakness

- Multiply weight of cach element with its mark to determine the number of points on importance

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- Add total number of points on importance of all factors to determine total number of points of [FE matrix

Development of SWOT matrix must be done through eight steps:

List external major opportunities of the company

List external major threats of the company

List interal strengths of the company

List internal weaknesses of the company

of SO strategy in appropriate box

Combine internal strengths with external opportunities and record the results

- Combine internal weaknesses with external opportunities and record results

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| List weaknesses 1 Use strengths to avoid threats

2 im 1 Minimize weaknesses and

If position of the company located in the 3 red cell, it should be reaped or retreated, even try to flee to keep their strength intact

IE Matrix IFE - Internal factor evaluation Strong Average Weak EFE

1.3.4 Quantitative Strategic Planning Matrix - QSPM

Enterprises choose strategies by using QSPM

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(QSPM matrix uses input data from analysis of steps as mentioned in previous chapter) to help strategists making decision objectively which replaceable strategy

is the most attractive strategy and worthy for enterprises pursuing in order to implement its goals successfully Implementation of QSPM consists of 6 steps

- List external major opportunities / threats and internal strengths / weaknesses

in column (1) of the matrix These elements are taken directly from EFE matrix and

- Determine attractive points (column A); not attractive = 1, less attractive = 2,

quite attractive = 3, very attractive = 4 These values indicate relative attractiveness

of each strategy compared to other strategies in the same replaceable strategic group

- Calculate total acttractive points score of each individual reviewed strategies for each critical success factors set out in column (1) by multiplying number of classification with number of acttractive points in each row (in column B)

- Cumulative addition of number of acttractive points of each strategy (consideration of all suitable internal and external factors that can affect strategic decisions) The higher total score, the more consistent and worthy strategic for

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In principle, a QSPM includes any number of replaceable strategies group and,

it can include any number of strategies in a certain group, but only strategies are evaluated in the same group For example, a diversification strategic group may include concentric diversification and diversified conglomerate strategies, while a group of other strategies includes vertically linked strategies (forward or backward) and horizontal linked ones These group strategies are different and strategies are evaluated by QSPM in the same group

It should be noted that QSPM indicates relative attractiveness of the strategy that can select and more importantly, it provides objective basis for consideration and decision to select the most appropriate product strategy However, QSPM also has many disadvantages limited and it must have certain conditions to use in practice Intuitive judgment must be required for elements attractive point that is one of the biggest disadvantage in matrix building process - although based on the environmental analysis information was conducted before Therefore QSPM will be used effectively if strategists need to thoroughly discuss and agree on each number

in the matrix by adding a marking basis in basis column with number of attractive points

Strategic selection is the final step in strategic building and also the first step in strategies implementation process Development and selection of business strategy

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gave the steps to implement for a viable business strategy It is decisional to enterprise success in the business market Selected strategy must be implemented by enterprise effectively This is a critical stage and the desired strategic metabolic step of enterprise into reality

1.3.5 Strategic selection

From the results of the we select the strategic plan group from SWOT matrix,

TE matrix and QSPM results

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CHAPTER II

ANALYSIS OF BUSINESS STATUS IN BIDV QUANG BINH

2.1 Overview of Bank for Investment and Development of Quang Binh

Fax : 0523.823553

usiness registratio 1Stexi iñ

Business registration : Business registration certificate number:

0100150619-033-00072 issued by DPI Quang Binh dated 20 June 2012

Tax code : 0100150619-033-00072

2.1.2 Establishment history and development

Joint stock commercial Bank for Investment and Development of Quang Binh

is a branch of Joint stock commercial Bank for Investment and Development of

Vietnam (BIDV) established since 26 April 1957 Before 1 June 2012, BIDV

Quang Binh was established from Reconstruction Bank — Dong Hoi Sub-branch with the primary purpose of allocating the state credit and construction investment support In 1995, it moved to commercial and multi-currency trading It splits fund allocation and investment support activities to Development assistance fund (now

Development bank) BIDV was transferred from State commercial bank to Joint

stock commercial bank on | June 2012 Up to now, Joint stock commercial Bank for Investment and Development of Quang Binh has strong reform of the

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organization, staff, scope and form of activities to positively contribute in implementation of monetary policy objectives for economic — society development Especially, it has moved to trading that main service in development investment and business manufacturing for enterprises in all economic sectors according to market mechanism, diversify banking products and branch operation scale has increased rapidly, businesses always ensure safety, quality and efficiency During 15 years, the branch is always recognized as a excellent performance unit of assigned tasks 2.1.3 Business field of the bank

Business activities: Trading currencies (including financial and non-financial services business)

2.1.4 Business vision and mission

2.1.4.1 Strategic vision

Promotion of banking restructuring to increase efficiency, quality, active risk management and sustainable growth

Focusing on retail banking activity development, hold the largest market share

of retail credit loans, retail funding

Expanding service distribution channels by opening new transaction offices, POS and ATM

Improvement and development of bank information technology systems associated with development of diversified production systems, support for the E- banking development

Maintenance and development of BIDV position in the market and exploitation

of new market potential

Taking advantage and proving available strength of BIDV as well as the transformation into a joint-stock commercial bank for developing and expanding the field of operating effectively in both width and depth

Improvement of risk management capabilities; focused on restructuring the organization and management, improvement of administration

Improvement of human resources quality and ensuring employee interests

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BIDV cultural building and brand development

2.1.4.2 Business mission

According to BIDV regulation, all branchs are responsible for currency trading, credit, payment and other types of banking services in the direction of multi-energy for all economic sectors, with the following major product groups:

- Payment service products: Include account opening, provision of local and international payment, implementation of local and international payment services, ect

- E-banking service product: Providing services of fund management, sales, automatic salary payment, ATM, internet banking, VNToup, e-wallet

- Foreign currency trading and derivative products: foreign exchange trading, cross-Currency swaps, buying and selling capital

- Cash service products: Providing services of ash counting and assets storage

- Credit, guarantee products: short-term, medium-term and long- term loan,

mortgage, credit discount, vouchers discount, all kinds of guarantee, credit card

issuance, L/C opening and other forms of payment commitments under the provisions of State Bank

- Fund mobilization products: Includes term deposits, non-term deposits, issuing certificates of deposit, bonds, promissory notes and other valuable papers to raise capital, loans from local and international credit institutions, and other forms of fund mobilization as prescribed by State Bank

- Cross-selling products: insurance products together with capital and credit products

2.1.5 Organizational structure and distribution network

BIDV Quang Binh is a large bank in area, behind AgriBank in term of scale, networks, fund mobilization but pridomintes on service revenue, net profit after tax and credit Beside functional divisions in head office, BIDV Quang Binh has four transaction offices located in key areas of Quang Binh province including

1 Dong Hoi transaction office - Add: 46 Quang Trung — Dong Hoi — Quang Binh

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Nguyen Trai transaction office — Add: 3 Nguyen Trai — Dong Hoi — Quang Binh

Bo Trach transaction office — Add: Hoan Lao town — Bo Trach — Quang Binh

Table 1 Operation organizational model of BIDV Quang Binh

Brach Deputy Director

Implementation Internal management Transaction offices

Customer | “r0 ty Done Hoi

đi Risk management | | Credit Financial div “ b

— management div div | See ore | i ¿ transaction office

MA nddividual | | transaction div | [— & la g div Bac Ly transaction customer relation ‘ L4? J L office J

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2.2 Analysis of business environment

2.2.1, Analysis of macro environment

2.2.1.1 Economic factor

In 2012, Quang Binh economy continues stability and growth, agricultural

production of winter-spring has good crop; it is difficult in industrial production,

but it is still growth than the same period GDP growth rate of the first six months

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of 2012 reached 6.2% (all year plan increases 8.5 - 9%, the same period performed 7.5%) Economic restructuring and internal structure of each economic sector continue having a positive change in the specific share of agriculture, forestry, fisheries, ascending proportion of industry - construction and service industries sectors Regarding banking and finance of the first 6 months of 2012, operation of banking system, credit institutions has taken seriously and promptly direct the umplementation of monetary policy, credit, and solutions to overcome difficulties for enterprises, focus loan priority agriculture and rural development projects, effective operations enterprises, export, policy objects Implementation of rescheduling debt, long term debt, new loans, reducing interest rates At the same time, deployment of appropriate solutions for fund mobilization to meet credit

growth demand; review and evaluation of customer to make resolution on doubtful

debt

Inspectation and checking observance of regulations on lending, capital mobilization: compliance with regulations on the interest rate ceiling, interest rate ceiling with 4 priority fields; gradually removement of difficulties problems for enterprise loan However, Collection of budget in area is lower than average in country (48%), interest rates is fall, but it is still difficult to access loans In addition, implementation of tax policy exemption, reduction and payment extension will also deficit provincial budget about VND 130 billion, of which budget deficit

in 2012 is about VND 100 billion Slow collection of budget impacts to customers

of BIDV Quang Binh due to customer focused customer focused activities mainly

in the field of construction sector, payment fund resource mainly from State budget However, economic growth is not commensurate with potential, economic restructuring has been slow Ratio of products, crops, livestock productivity, high quality, processed products is low; economic efficiency is generally low and not really solid GDP growth rate was much lower than target set, GDP per capita is low In 2011, it happened the black credit default leading credit market in Quang Binh changed complexly, a number of people by the mercenary mortgage loans

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leading the inability of debt payment, so bad debts tend to increase It made no small impact on fund mobilization activities in Quang Binh including BIDV Quang Binh

Table 2.1 Quang Binh's GDP growth rate

Criteria 2007 | 2008 | 2009 | 2010 | 2011 | 6/2012

Economic growth rate (GDP) (%) L 11,64} 11,42] | 10,21 8,90 | 8,60 6,20

(Source: Annual report of Quang Binh Provincial People’s Committee, website

http://www.quangbinh gov vn) 2.2.1.2 Politic and law factors

Social and political situation of Vietnam in general and Quang Binh in particular is generally quite stable, many countries in the world recognized and appreciated, it has laid basis for promotion of cooperation, investment in the present and future, to create favorable conditions for enterprise operation, so that social capital increased significantly This is the time and the operation of enterprises as well as banks

State Bank and credit institutions law was amended and supplemented under direction of integration, (credit institution law 1997 is replaced by credit institution law 2010) to fit general trend In addition, State banks drastic regulatory role in handling issues related to monetary policy, interest rates, exchange rates is increasing (In 2011 and the first months of 2012, series leader of credit institutions have been disciplined, demoted deliberately due to uncomplying with the provisions

of State Bank such as threading deposit and loan ceiling interest rate) It has gradually improved legal framework for banking activities to meet needs of international economic integration and improve the performance of banking currency

However, a problem arises in the general downturn of global economy and Vietnam is not an exception, the government has implemented policies to tighten public spending paused and limited investment activities and decided to control ceiling deposit rate to 9% / year for fund raising under 12 months and to control

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maximum loan ceiling interest rate of 15% / year, but it is still really high In addition, it is still effected by higher interest rates in 2011 and early 2012 (unpaid debt, overdue debt, or no project for the new loan) Closed enterprises, delayed

construction, losses business, lost jobs workers, reduced income which made

difficulty and no small influence on business activities of BIDV Quang Binh

Most banks have equiped themselves core-banking system and payment system basically meet international standards and practices E-banking payment systems have developed along with development of e-commerce in Vietnam Many banks offer online payment services, e-wallet and integrated payment services to professional payment services as VNPAY, ESpay, budget amount for bill payment, services and electronic shopping Master card, credit card, visa debit card, ATM and POS system is also developed with average growth rate of about 40% -50% in consecutive years

Although banking technology has been developed greatly, but provided service products are not diversified and limited in scale and utility, in addition, cash using habits of the economy, so e-banking payment activities is still growing in potential

Table 2.2 's Corebanking system of commercial banks in Vietnam

No | Supplier Local bank International Bank

" Mari Bank, OCBC,

1 | SIBS Siverlake - Malaysia | BIDV, VCB, CTG

UOB

l Symbol System SHB, VIB, MHB, Saigon

~ | Access - America Bank

| Tech, MB, Sacom, VP, Si

5 T24 - Temenos Baoviet, Amex, RZB,

(Switzerland) OCB, ABB, SeaBank, G Rabobank

Bank

Citi Bank-US, -

Lienviet, Habu, Indovina, | Deutsch

4 | I-flex Oracle (America)

Tienphong, Ocean Bank-Ger, HSBC-HK,

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2.2.1.4 Social and cultural factors

Table 2.3 Population by economic region

(Source: Quang Binh Statistical Yearbook 2011)

population growth (people)

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According to table 2.3, Quang Binh had population of 853,004 people in 2011 and has steadily increased over the years Unevenly distributed population, 84.85%

of population live in rural areas and 15.15% of population live in urban areas, over the years, the average growth rate of urban population is greater than growth rate of rural areas The cause of urban population increase status is the migration and urbanization process Population structure affects potential demand for banking services, especially retail banking products Quang Binh is a poor province, people still do not have habit of banking services using especially in rural areas Meanwhile head office and most of transaction office network of BIDV Quang Binh are based in Dong Hoi city, only one transaction is in the district where is not far from the city under 20km Generally, retail customers of Quang Binh BIDV mainly live in urban, in addition, BIDV Quang Binh servers wholesalers for economic organizations and enterprises It is difficult and costly to introduce banking services to people BIDV should have an effective solution to this issue in order to ensure profitability when expansion of transaction network into rural areas

In recent years, economy of Quang Binh as well as Vietnam is always high growth leading to per capita income also increased As incomes rise, people who have saving will appear needs to invest their earnings to profitability, as well as demand for loans to serve immediate consumption So they will look to banking and financial markets Demand for banking products and services will also be developed Currently, concept as well as habit of cash using have gradually changed, payment in cash tends to be reduced and replaced by a form of payment by non- cash means such as ATM cards, credit cards, etc, it is a great potential to payment activities through development banks In addition, in Quang Binh population Structure, number of employees working in economic sectors is large (more than 50% of population), led to a great demand for banking services using

Vietnamese sychology always changes constantly according to rules set by the fluctuation in market For example, when inflation economic situation, people change their way in saving from deposits to gold, gold keeping

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Quang Binh is more difficult than other provinces in access and introduction of banking products and services due to low intellectual standards

2.2.1.5 Natural factor

Quang Binh province located in the north of central region, Vietnam, with natural area of 8065 km’, geographical location:

* North Pole: 18 005 '12 "" of North latitude

* South Pole: 17 905 '02 " of North latitude

« East Pole: 106 059 '37 " of East Longitude

* West Pole: 105 036 '55 " of East Longitude

Quang Binh has abundant potential for development of heavy industry and non- smoke industry Quang Binh has large reserves of sand with high silica content suitable for glass industry development, large reserves of limestone that is considered as the best type of limestone for cement production, etc These industries which have customers of BIDV Quang Binh With rich tourism potential, Quang Binh likes a monumental painting of mountains, sea with beautiful natural

landscapes, famous sights: Horizontal Pass, Ly Hoa Pass, Nhat Le beach, Hac Hai

breaking, Heaven Gate and Phong Nha - Ke Bang National Park which was recognized as the world natural heritage

The province has a coastline of 116.04 km in the east and bordering with Laos 201.87 km in the west, Hon La Port Sea, Dong Hoi Airport, National Highway 1A and Ho Chi Minh trail, North-South railway, Highway 12 and provincial Road 20,

16 from east to west through International Cha Lo border gate and some other accessories connected to Laos, facilitate the circulation of goods in the domesticas

as Well as the countries in the area Thus, banking sector will have good conditions

to develop

But Quang Binh province located in tropical monsoon region and is affected by the heat from Laos, harsh climatic conditions, is the narrow strip of land near the forest close to the sea so regularly suffereffects of natural disasters Those have

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huge impact on economic development and trade of area, more or less difficult for banking activities

2.2.2 Business environment

2.2.2.1 Analysis of competitor pressure

Banking is still on the rise, total assets of Banks is constantly increasing that helps banks improve further its position in banking sector in particular and economy

in general Tota! assets of banking sector remains concentrated in state-owned cominercial banks like Agribank or joint-stock commercial bank with state capital more than 50% including BIDV, Vietinbank, Vietcombank and some joint stock commercial banks such as ACB, Sacombank

In 2011 and the first months of 2012, banks fiercely compete for funding, race to raise deposit interest rate ceiling even exceed the rate ceiling of State Bank

In addition, competing network transaction, value added services, customer care services, etc is fierce

With a narrow area, low living standards, it is difficult to develop fund mobilization and services Idle capital in local people is not large, capital of economic organizations and enterprises focus for business performance, financial institutions are not many, many products and services are deployed but still

"unknown" to people But huge credit growth demand due to investment demand for economic development thus mobilized funds do not meet credit growth demand