G1_00307 TÊN DỰ ÁNCHIẾN LƯỢC PHÁT TRIỂN CỦA NGÂN HÀNG NÔNG NGHIỆP VÀ PHÁT TRIỂN NÔNG THÔN VIỆT NAM - CHI NHÁNH TỈNH HÒA BÌNH GIAI ĐOẠN 2013-2017

G1_00307 TÊN DỰ ÁNCHIẾN LƯỢC PHÁT TRIỂN CỦA NGÂN HÀNG NÔNG NGHIỆP VÀ PHÁT TRIỂN NÔNG THÔN VIỆT NAM - CHI NHÁNH TỈNH HÒA BÌNH GIAI ĐOẠN 2013-2017

GRIGGS GLOBAL ADVANCED MASTER

OF BUSINESS ADMINISTRATION

GRADUATION PAPER Subject: Strategic management

PROJECT NAME DEVELOPMENT STRATEGY OF THE BANK FOR AGRICULTURE AND RURAL DEVELOPMENT OF VIETNAM — HOA BINH PROVINCE BRANCH

VIET NAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT

HOA BINH BRANCH

Add: No 6, Cu Chinh Lan, Phuong Lam, Hoa Binh

Website: Agribank.com.vn

Hoa Binh, September 05, 2012

To: Whom it may concern”

Subject: “Comfirmation of Agribank Hoa Binh on the project of Group 1, Ga.MBA - M0410 - Grigss University, USA”

ei a

Dear Sirs/Madams;

We, Agribank Hoa Binh, hereby confirm these members as named bellows have closely followed up the current situation of the organization structure and business activities of Agribank Hoa Binh to implement the project

The content of “The-developing business strategic for Agribank Hoa Binh in the period of 2013 - 2017” mentions the targets that Agribank Hoa Binh is trying to reach and has high feasibility

The content of the project is excellent and useful

Members of Group:

Ms Le Mai Anh

Ms Nguyen Hai Huong

Mr Do Manh Hao

Mr Bui Minh Hai

Agribank Hoa Binh

ACKNOWLEDGEMENT

On behalf of all students, Group | would like to send our deepest gratitude to all lecturers Our groups have studied your lectures and materials carefully and sought for various pratical references to complete this exercise We also would like to thank the management and staffs of the Bank for Agriculture and Rural Development of Vietnam

— Hoa Binh Province Branch, who have enthusiastically shared with us data and relevant documents to accomplish this important paper

We hereby certify that the paper is of our own effort and this is the first time it

has been published

Yours respectfully,

Writing Team

1.2.1 Analysis of external and internal environment 16 1.2.1.1 External environment analysis — the External Factor Evaluation matrix 16

1.2.1.2 Internal environment analysis — the Internal Factor Evaluation matrix 20

2.1.4 Business performance in the past three years T3532 | 2.2 Analysis of business situation of Agribank Hoa Binh 34

3.1 ‘Development objectives of Agribank Hoa Binh in 2013 — 2017 period 63

32 Building and selection of development strategy of Agribank Hoa Binh in ~ | 63 |

2013 —2017 period

3.3.2 Solutions to implement strategy of sustainable development

3.3.3 Risk management solutions

[ Ta»le 1.1 EFE matrix

Table 1.2 IFE matrix

/Tadle 1.3 | Quantitative Strategic Planning Matrix(QSPM) |

ITasdel4 | Analysis of Competitive Profile Matrix

Taple 2.1 Several targets of business operation of Agribank Hoa Binh

Bảng 2.5 External Factor Evaluation Matrix (EFE — Agribank Hoa Binh)

Ta»le 2.6 Annual reports of business performance of Agribank Hoa Binh

Table 2.7 Staff structure by educational levels by 31 December 201 1

INTRODUCTION

1 Research rationale

It is a reality that the world is becoming flatter Scientific and technological development, particularly in information technology, has connected the world’s economies and gradually flattened the development gap so that each country has now become a player in the world equal playground Vietnam is not an exception, especially when the integration process has undergone so fast due to the roadmap of our commitment when joining in the World Trade Organization (WTO) as well as bilateral trade agreements

The international economic integration not only brings opportunities but also causes a lot of challenges for Vietnamese enterprises, especially for those operating in

banking sector (e.g., commercial banks), which is considered as the “blood vessel of the

economy” In order to compete successfully, each bank needs to set up a sound development strategy which can help to maximize their competitive advantages, make

differences and assert its brand name in the market

Established in 1988 and having undergone through 24 years of development, the Bank for Agriculture and Rural Development of Vietnam (Agribank) is a leading commercial bank which plays decisive and important roles in impulsion of Vietnam economy, particularly in investing in agriculture and rural development Agribank is the largest bank in Vietnam in terms of capital, asset, personnel, network and customers As

of 31 December 2011, the leading position of Agribank had been still confirmed in many aspects, with total asset of over 561 trillion; total capital of over 505 trillion; total debit of 443 trillion; nearly 42,000 staff and 2,400 branches and transaction offices Currently, it is having cooperation with over 10 million households and 40 thousand enterprises in the country

However, operating in the context of integration with increasingly fierce competitive pressures, which happen both with domestic and foreign banks and takes

place not only at urban market but also at rural area, Vietnam Agribank has exposed its main limitations and fundamental weaknesses, including: inadequate rate of minimum guaranteed capital; inappropriate organizational structure; low proportion of extra income beside traditional credit; inadequate risk management comparing with

international standard, etc Specially, previous development strategies of Agribank were

not so highly effective that many targets were not achieved; business results did not mect expectations; and competitiveness was not good as other joint stock banks have placed huge investrnent in technology and applied good development strategies

Based on the above background, the research project on “Development strategy

of the Bank for Agriculture and Rural Development of Vietnam — Hoa Binh province branch, period 2013 - 2017” was selected by group | for our graduation paper

2 Research objective The Group 1 conducted the research on business performance of banking services at Agribank Hoa Binh to analyze the current situation and propose a business development strategy for the branch in the period of 2013 to 2017

3: Research methodology

- Secondary data collection:

The data used in this assignment is extracted and consolidated from the statistic yearbooks, reported data from the State Bank website, annual reports of the Vietnam Agribank In addition, the group also refers to several references, books, newspapers and magazines as well as specialized training materials

- Comparison, synthesis and expert consultation methods:

During analyzing process, the researchers use comparison method and synthesize data of Agribank Hoa Binh in the past and at the present, and comparing targets and business performance indicators of Agribank Hoa Binh with several commercial banks within Hoa Binh province as well In addition, the researchers

consulted with experts of Agribank and other banks about evaluating scores during natrix analysis process

4 Thesis structure

In addition to the introduction, conclusion, annex and list of references, the

tiesis consist of three main chapters as follows:

Chapter 1: Methodologies

Chapter 2: Anaiysis of business situation of Agribank Hoa Binh

Chapter 3: Development strategy for Agribank Hoa Binh, period 2013 - 2017

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Or a strategy can be understood as follows:

- The destination that the enterprise attempts to reach at in the long run

Strategies at different levels in an enterprise

In any organization, strategies exist at several different levels — ranging from the entire corporate level (or a group of enterprises) to individuals working within it The

corporate strategy relates to the overall objective and scale of the enterprise to satisfy

expectations of shareholders This is an important level as it is greatly influenced by enterprise investors and it guides the strategic decision-making process throughout the enterprise Corporate strategy is often presented clearly in its “mission statement”

Business strategy is more about how an enterprise can successfully compete in a specific market It relates to the rights of making strategies for product selection, serving customer’s demands, and gaining advantages from other competitors, exploiting and creating new opportunities, etc Operational strategy is about how each unit within the enterprise is organized to perform well the strategic direction at corporate level as well as strategies at department level Therefore, the operational strategy focuses on issues relating to resources, processes and people,

1.1.2 The fundamentals of strategy

Strategic management enables a company to be more dynamic in reacting to shape out its future It allows the company to be creative and impose influences (rather than just reacting) to the environment Thus, the company can control its own destiny Small business owners, senior executives, presidents and managers of both profit and non-profit organizations have been aware of and paid huge concerns about the benefits

of strategic management Strategic management brings many benefits such as:

- It helps to realize, prioritize and utilize opportunities It enables us to take

an objective view over administrative issues

- It represents the structure of cooperation and improves control over

- It also allows using less time and resources for amending errors or making special decisions

- It creates the structure for internal communication within human resource

department

It helps to harmonize individual behaviours with joint efforts

It provides the basis for clarifying individual responsibilities

It encourages thinking about the future

It gives us approach of cooperation, harmony and enthusiasm to address issues and taking opportunities that may arise

- It encourages positive attitudes towards innovation

- Itcreates disciplines and specifications of corporate governance

1.1.3 Process of strategic management

1.1.3.1 Stages of strategic management

As we know: Specialists of strategic management have to master the process of strategic planning and implementation to actively develop outline and make necessary adjustments for the strategy The process of strategy planning is modeled by the following diagram:

Diagram 1.1: MODEL OF STRATEGIC MANAGEMENT PROCESS

During the process of strategic management, three main steps are usually noticed:

strategy planning, strategy implementation, and strategy supervision and evaluation

Details are as below

Strategy planning:

This is the process of setting up business functions, performing investigations to define internal strengths and weaknesses, external opportunities and threats, setting up long-term objectives, developing and selecting alternative strategies Three main activities

in this stage include:

Conducting research: This is to collect and analyze information about markets and industry in order to identify important strengths and main weaknesses of its business area Decisions made during strategy planning stage will help connecting the company with

products, markets, resources and technologies

Synthesizing intuition: There are various techniques that enable strategy makers to synthesize their intuition with the situation analysis to set up and select the most feasible alternative strategies

Making decision: As no organizations have endless resources; managers have to make decision to select the most suitable alternative strategy that will benefit the enterprise most Strategy decision has long-term effect to the company, either positive or negative Strategic makers need to have visionary ability to foresee all possible stages and areas of decision making process

1.1.3.2 Strategy implementation

Strategy implementation is the operational stage of the strategy management Key activities of this stage include setting up short-term objectives, issuing policies and distributing resources Stage of strategy implementation is often considered as the most difficult phase of strategic management The implementation of the strategy requires strict disciplines, great dedication and sacrifice of all members of the enterprise At this point of time, the role of the managers is significant, which shows their leadership and ability to motivate staff to implement the strategy for the best success

The implementation of the strategy includes those of financial policies, programs, cultural environment, policies on rewards and allowances for employees The most challenge of strategy implementation is to find the way to encourage managers and staff of

the entire enterprise to work hard with their great pride and enthusiasm towards the

enterprise's planned overall objectives

Strategy supervision and evaluation: The final stage of strategic management is about supervision and evaluation This is to monitor results cf planned activities and strategy implementation It is so essential because results gained at the present may not guarantee for any success in the future

Key activities of this stage include:

+ Reviewing key factors which set the basis for current strategies

+ Measuring achieved results

+ Making any necessary adjustments

Although making good strategic decisions is the main responsibility of managers,

both they and executive staff have to take part in the processes of strategy planning,

implementation and inspection and evaluation Their participation is the key factor for the company’s success and is the condition to achieve adherence to necessary changes

1.1.3.3 Decision making for strategy selection

This is the final stage to make decision for an appropriate strategy

1.2 Process of developing business strategy

1.2.1 Analysis of external and internal environment

1.2.1.1 Analysis of external environment — External Factors Evaluation matrix

1.2.1.1.1 Macro environment

Macro environment consists of different factors which indirectly affect the business operation through its impacts on elements of sectorial environment Among

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those, managers concern about five most powerful factors, including: economy, institutionalism and legislation, society, technology and nature

+ Economic factor: Economic factor has a huge impact on enterprises and it is the most mobile factor on a regular basis and it is the most unpredictable one

among macro factors

+ Technological factor: Because of the stormy development of science and technology today, the life cycle of technology is becoming shorter The introduction of new technologies will destroy the old ones Newborn technologies will increase the advantages of substitute products, making them more perfect with cheaper prices and they also may create new markets Therefore, enterprises need to enhance their research and exploitation of new technologies

+ Natural factor: It is an important factor for the life of human beings It

is considered to be the least changing factor However, for the past few decades, the natural environment has been degraded seriously This may strongly affect to the developmental trends of enterprises’ business

+ Social factors, population, customs, hobbies are factors that directly affect

the consumption demands of the society

+ Institutional and legal factors: These include a set of opinions, policies, regulations, rules and procedures They affect the survival and development of the industry, economic situation and therefore impact on the operation of the enterprise

External Factor Evaluation Matrix (EFE)

The EFE matrix enables managers to summarize and evaluate information of socio-economic situation, culture, demographics, geography, politics, law, technology and competitiveness This helps managers to assess the responsive level of the enterprise towards opportunities and threats and make judgments about external factors, either they are favorable or challenging to the company

Table 1-1: EFE Matrix

1.2.1.1.2 Micro environment

Micro environment includes external factors which are surrounding to the enterprise and determine the competitive nature and degree within the industry According to Professor Michael Porter, the operational environment suffers from eftects of five competitive forces: threat of potential entrants, competitive intensity of

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industry competitors, bargaining power of buyers, bargaining power of suppliers and threat of substitute products

Potential Competitors

Diagram 1.2: Model of 5 competitive forces

+ Potential competitors: These are companies that have not participated in the industry competition yet but they are likely to enter the industry The emergence of these competitors will increase the competitive intensity and reduce profits in the industry The possibility to penetrate of potential competitors depends on entry barriers

If the barriers to entry are huge, the penetrative possibility will decrease and vice versa According to Joe Bain, there are three main barriers that hinder the entry, including: customer loyalty to company products, absolute advantages of cost and economy of scale If the enterprise has good strategy to improve barriers to entry, it will be able to restrain the risk of potential competitors’ penetration

+ Existing competitors: Existing competitors are current pressure and they

directly impose threats to companies When the competitiveness of existing firms

within the industry increases, it will place more threats to company profit, existence and

development Because of these firms’ competitiveness, the company has to increase

investment to differentiate their products, improving their market accessing services or

reduce their prices

+ Customers: Customers are the target entity that the enterprise serves and

can be considered a part of the company Customers’ loyalty is an asset of the company

Customers’ loyalty is created by the company fulfillment of their needs and its wishes

to perform better jobs Another problem relating to customers is the pressure that they

impose on buyers by their bargaining ability The buyers have advantages that they can

reduce the industry profits by lowering the prices or demanding higher quality and more

service work The more customers’ bargaining power is the more difficulties it may

create for the enterprise

+ Suppliers: They are organizations or individuals that ensure provision

of essential elements for the enterprise to produce goods or services The change of

suppliers has big impacts on the enterprise business and production Thus, suppliers

may have a strong force on the operation of the enterprise

+ Substitute products: These are products with lower utility, feature and cost comparing wi! enterprises’ loss of profit and cost deficit Substitute products are often associated with

potential competitors and penetration force Enterprises should pay attention to this and

reserve resources to develop or adopt new technologies in their own strategies

1.2.1.2 Analysis of internal environment — Internal factor evaluation matrix

Internal environment analysis aims to find out strengths and weaknesses of the

enterprise The internal strengths and weaknesses of the enterprise come from its own

operations that could be controlled Management, research and development,

administration of manufacturing operation and activities of enterprise information system

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are main areas where strengths and weaknesses may appear The process of identifying and assessing strengths and weaknesses in functional areas of one enterprise is an essential strategy management On that basis, the enterprise will attempt to build up business strategies which can take advantage of the strengths and improve the internal weaknesses

Internal Factor Evaluation Matrix (IFE):

Internal Factor Evaluation Matrix allows strategic management to summarize and

evaluate key strengths and weakness of business functional units, and it is also the basis to

define and assess relation between those units

Establishing IFE matrix also includes five steps as setting up EFE matrix But

there is one difference between the two matrixes, that the IEF selects indicators from

internal factors of the enterprise own

The highest total score is 4 and the lowest is 1, the average is 2.5 points If the total score is lower than 2.5, the enterprise is internally weak; if it is higher than 2.5, the enterprise is internally strong (see Diagram 1.6)

Table 1-2: IFE Matrix

Exchanged

scores

environmental changes

l

2

——P

1.2.1.3 Competitive Profile Matrix (CPM)

Competitive influence is considered the most important impact to the company strategic position Competitive Profile Matrix defines main competitors and_ their strengths as well as their weaknesses Competitive Profile Matrix is an extension of the External Factor Evaluation matrix in the cases that importance level, rating and critical total scores are of the same significance CPM is different with EFE in the way that decisively important internal factors may be also included, for instance the financial stability, advertising effectiveness, expertise for research and development In addition, another difference between the two matrixes is that ratings of competing companies are included in the CPM and their total weighted scores are also calculated The total scores

of competitors are then compared with the researched company This comparison provides critical strategic information

Table 1-4: Analysis of Competitive Profile Matrix:

l

2

The analysis of the competitive profile matrix aims to help enterprises clarify its own position towards other competitors making the basis for managers to make the

of positive trends and changes in the external environment

* Weakness — Opportunity strategy (WO): To improve the internal weaknesses

by taking advantage of external opportunities The great opportunities sometimes exist outside the company, but the internal weaknesses may prevent it to access to those opportunities

* Strength - Threat strategy (ST): To use the company's strengths to prevent or mitigate the impact of external threats A powerful organization sometimes also has to

cope with external threats

* Weaknesses — Threat strategy (WT): This is a defensive strategy which aims at reducing internal weaknesses and avoiding external threats An organization which has to deal with a multitude of external threats and internal weaknesses will fall

into an unsafe condition

The strategies withSO —

Using the strengths to utilize the opportunities

The strategies with ST

Overtaking the threats by utilizing the strengths

The strategies with WO

Reducing the weaknesses to take advantage of the

Minimizing the weaknesses and preventing threats

Diagram 1.3: SWOT matrix model Based on the SWOT matrix, the company will identify its strategies to promote the strengths and overcome the weaknesses, taking the opportunities and preventing the threats imposed by the environment

From the results of the SWOT analysis, the company will choose the most appropriate business strategy The quantitative strategic planning matrix (QSPM) can

Total of Attractiveness

Score (AS)

AS is the Attractiveness Score and TAS is the Total Attractive Score which are rated for factors of the same classification in the EFE and IFE matrix The Attractiveness Score (SA) will be ranged from | (unattractive) to 4 (very attractive)

The Total Attractiveness Score (TAS) is calculated by multiplying the rated weights

with the Attractiveness Score

The QSPM uses inputs from the analysis of EFE matrix, competitive profile matrix and IFE matrix After that, it gathers necessary information to set up QSPM

from the SWOT matrix

Strategies are developed based on the analysis and evaluation of the business environment, firstly on key internal and external success factors, and then determining strategies to achieve planned objectives The selected strategies require very good judgment by multiplying the rating weights with attractiveness scores

1.2.2 Strategy selection After analyzing external environment and internal environment, matrixes to assess the impacts of key factors and combining matrix are set up Important techniques

to form a strategy that can be incorporated into a decision-making process consists of three phases The tools used for this process can be applied to all kinds of organizations and it can help strategists to identify, evaluate and select the best strategy

The evaluation of the strategy effectiveness will help managers to see whether the implementation of the chosen strategy is right or it may need to be adjusted accordingly Therefore, executives agree that strategic evaluation is necessary to gain the organizational prosperity Timely assessment can alert the management about

problems or difficulties that may occur before a situation becomes more serious The strategic evaluation consists of three main activities:

- Control the fundamentals of the strategy

- Compare the expected results with the real outcomes

- Get the right operation to ensure the work being carried out in accordance with the plan

CHAPTER II: ANALYSIS OF BUSINESS SITUATION

OF AGRIBANK HOA BINH 2.1 Overview of Agribank Hoa Binh

2.1.1 General introduction

Vietnam Bank for Agriculture and Rural Development (Agribank) is the largest bank in Viet Nam in terms of capital, assets, workforce, operating network and

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customer base As of 31 December 2011 the leading role of Agribank has been confirmed by:

Total fund resource: VND 561,250 billion Equity: VND 505,792 billion

Total assets: VND 29,606 billion Total outstanding loans: VND 443.476 billion

Operating network: 2400 branches and transaction offices nationwide and in Cambodia Personnel: 42,000 staffs

Website: www.agribank.com.vn

Tel: +84 4 38313717 Fax: +84 4 38313719

Headquarter: 18 Tran Huu Duc street, My Dinh ward, Tu Liem district, Ha Noi

On Ist October, 1991, Hoa Binh province was re-established by separating from

Ha Son Binh province, following the Resolution of the National Assembly Operating under the new provincial unit, Hoa Binh had to face with a lot of difficulties such as poor infrastructure and low technical capacity, unstable organizational structure, low level of manufacturing capacity and underdeveloped living standard Together with the re-establishment event of the province, Agribank Hoa Binh was founded by absorbing Hoa Binh Commercial Bank and 9 Agriculture Banks at district level, which belonged

to Agriculture Bank of former Ha Son Binh province

After being established, Agribank Hoa Binh has quickly undergone on well with new requirements and tasks of this industry, which based on the Resolution of the Seventh National Party Congress It became a member unit under the Agriculture Banking System in Vietnam, performing multiple business functions, being self- responsible for finance and operating mainly within the rural and agricultural sector

Agribank Hoa Binh is an agency of type 1, belonging to Agribank Vietnam, being responsible for all business in Hoa Binh province

Office: No 6, Cu Chinh Lan street Phuong Lam ward Hoa Binh

Agribank Hoa Binh consists of the Head Office and 2 branches of type 3 based

in Hoa Binh city, 10 branches of type 3 at 10 districts and 16 transaction offices under

the third branch located in the center of communes, wards of the city and districts in the province with 398 staff, including 58.7% female and 41.3% male Around 1.5% of the

employees hold postgraduate degree, 75.4% hold bachelor degree, 6.8% hold college

⁄

degree or equivalent and 16.3% hold vocational degree

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Agribank Hoa Binh Top Management composes of the director and 03 deputy

directors who were assigned to direct the whole business volume and the inferior branches Agribank Hoa Binh has 7 departments: Planning and General Office; Credit;

Accounting and Funds; Services and Marketing; Information Technology; Internal

Inspection and Control; Administration and Human Resources

The direct branches of type 3 consist of: The Management (Director and 0T to 02 Deputy Directors), Planning — Marketing Department, Accounting and Treasury Department and Transaction offices

(The organizational structure of Agribank system is based on Decision

2656/OD-NHNN dated 9 November 2007 of the Governor of the State Bank on the adjustment of the system of branches of Bank for Agriculture and Rural Development of Vietnam as stipulated in Decision 888 /2005/QOD-NHNN of the State Bank Governor)

Diagram 2.1 Organizational structure of Agribank Hoa Binh

(Source: Agribank Hoa Binh)

2.1.3 Main functions and responsibilities

- Doing other servIces (securItIes I1Surance )

- Pledging, discounting bills and other short term papers as stipulated by Agribank

- Co-financing, coordinating for co-financing of credits as regulations and perform other business such as commercial funding as the provision of Agribank

- Performing pawning services according to Agribank regulations

- Performing guarantee professions (loan guarantee, payment guarantee, contract

implementation guarantee, tender guarantee, etc)

- Trading gold and silver as of Agribank regulation

- Providing financial and credit counseling for customers

- Counseling for customers about project development

- Managing inferior branches; implementing policies of the State and Party relating to banking operation, policies on agriculture and rural development, and other missions assigned or authorized by Agribank Vietnam

2.1.4 Business performance in the past three years

After 20 years of establishment and development, Agribank Hoa Binh has complied with the direction of the Board of Directors (now called Member Council) and The Top Management, so its business operation has gained positive results in the Past few years

Table 2.1: Report of business performance of Agribank Hoa Binh, period 2009

Results | compared | Results | compared | Results | compared

| Total fund mobilization billion | 1.690 2% | 2.168 28.3% | 2.169 0%

rural areas

deposits in total capital

Average mobilized capital | billion T ‘60% $4 23% sã 0%

per capita

agriculture in total loans

Outstanding | UBHGLRB 108 per billion 7,1 8% | 8,1 14% 9 11%

sector in rural areas

Total revenue (income- billion

verage income fund ig i per 0.18; 20%| 027) 50%| 031 15%

capita

Rate of service income %

Tax for local authority | bition 1.05 | 52% | 1,67 84% | 2.08 25%

(Source: Report for business performance of Agribank Hoa Binh)

After 20 years of operation, Agribank Hoa Binh has developed significantly in terms of both scale and business performance Particularly, the two years 2010 and 2011 marked its remarkable success in its process of development The expansion of its branch network provides opportunities to serve diverse customers than ever before, including customers in big urban areas, newly developed urban areas and rural areas Hence it provides banking products to every place, every enterprise and contributes much for social and economic development Especially, with its original strengths in rural areas, Agribank Hoa Binh has identified that the rural market is a potential area that still lack of consideration and exploitation of other commercial banks And in order to exploit this market, Agribank Hoa Binh needs to develop appropriate strategies

2.2 Analysis of the business situation of Agribank Hoa Binh

2.2.1 Analysis of external environment

2.2.1.1 General Environment (PEST)

Hoa Binh is a mountainous province in Northwest area, adjacent to Ha Noi; its township is Hoa Binh City, 73 km far from Ha Noi, 93 km far from Noi Bai

International Airport, 197 km far from Hai Phong Port

The population of Hoa Binh Province is not big, less than 1 million people, therefore, the demand for services is low However, Hoa Binh’s population is mainly young population in working age range Such population accounts for more than 50%

of the total population The percentage of trained laborers accounts for 30%.The average working age is 27 - 28 years old with relatively high income So, the demand for use of banking services is still large They easily access and prefer banking services,

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especially modern banking services Moreover, this is a chance for Agribank Hoa Binh

to have good human resources to meet the increasing requirements in banking activities

With a-total natural area of 459,524.36 hectares, of which agricultural land occupies 307,986 ha, accounting for 67% of total natural area.So farmer households and enterprises operating in the rural and agricultural sector account for more than 60% of total number of enterprises in the province This is a favorable factor for the development of agricultural and rural products and services of Agribank Hoa Binh, of which the target customers are small and medium size enterprises

Hoa Binh is one of the provinces to be rated at a relatively low level of

competitiveness, of which the most high-ranking factors include openness, transparency

and market access To improve the competitiveness of the province, relating authorities analyzed strong and weak points and recommended the provincial People's Committee

to focus its direction on improving the investment environment in the province Therefore, the provincial People's Committee issued and implemented the Decision 04/QD-UBND which was a great step in its administrative reform, building transparent business environment and contributing significantly for enhancing the province competitiveness

Being a state commercial bank with the functions of doing monetary credit and banking services mainly in rural and agricultural areas in the province, Agribank Hoa Binh has got many advantages to comply with regulations issued by the provincial People’s Committee

Besides that, Agribank Hoa Binh was selected by the provincial People’s Committees to be the implementer for wage payment for State budget factors through deposit accounts, in accordance with the Direction 20/2007/CT-TTg on 28 April 2007

of the Prime Minister on wage payment by bank account for those paid by the State budget This can be considered as a favorable environmental factor for the development

of Agribank services in Hoa Binh province

In 2011, the economic growth of Hoa Binh achieved 10.2% while the number for the whole country economic development was just 5.89% The total state budget revenue in the area was estimated to reach 1,580 billion, increasing 5% in comparison

wh the provincial People’s Council Resolution The investment attraction was at good level with around 363 currently registered projects within the provincial area, including

22 foreign direct investment projects with registered capital of $202 million and 341 donestic investment with registered capital of 34,000 billion, all of which created jobs

for around 8,000 labourers

As being reported, the provincial competitiveness index in 2011 by Vietnam Chamber of Commerce and Industry and the project on improving competiveness in Vietnam with 13,500 companies surveyed in Vietnam, Hoa Binh got 56.51 points, which increased 6.63 points comparing with 2010 and was ranked at 47th position, increasing 13 steps from 2010

Currently, there are 26 projects in industrial zones in the province which are undergoing their production with the estimated revenue of $25.7 million and 1,078 trilion, estimated export value of $24.4 million, supplementing for the state budget of around 58 billion — an increase of 3.4 times over the same previous period, creating jobs fornearly 3,900 employees

Although it faced with a lot of difficulties, in 2011 there were still 60 projects to

be granted investment certificate, in which there were 6 foreign investment projects wil) the total registered capital of $112.5 million and 54 domestic investment project win total registered capital of 7,400 billion The provincial People’s Committee also sigied a memorandum of understanding with BTG group (Slovakia) to carry out invzstment projects in Lac Thinh industrial zone, Yen Thuy district in 2011 — 2015 perod with the total registered capital of 378 million euro

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This is a great opportunity for Agribank Hoa Binh because in one hand, it can still work with traditional customers such as families and individuals in rural and agricultural economy and enterprises working in agricultural sectors which used to face with many difficulties in mobilizing foreign capital; on the other hand, it can now can move towards potential customers of enterprises in industrial and processing zones, which can bring back a great deal of foreign capital and usage of banking services

In recent years, the State Bank issued various documents impacting much to banking operations such as:

- Circular 13/2010/TT- NHNN dated 5/20/2010 stipulating prudential ratios in operations of credit institutions of the State bank of Vietnam which came into effect from 10/1/2010 This requires banks to restructure their assets to ensure prudential ratios according to State standards and towards world banking system standards Circular 13 provides some main points as follows:

+ Loan rate shall not exceed 80% of the mobilized capital in which termless mobilized capital shall only be calculated with the rate of 15% (amended by Circular 19/2010/TT-NHNN)

Also in 2010, the Governor of the State Bank of Vietnam issued Directive No (2/CT-NHNN on organizing the implementation of monetary policies and ensuring the banking activity to be safe and efficient in 2010, which clearly specifies: to organize the implementation of monetary policies on an active, careful and flexible manner to stabilize the monetary market, ensuring the liquidity of banking system; to support the liquidity for the economy; to control growth rate of total means of payment at about 20% and of credit at about 25%, interest rates and exchange rates at reasonable level

On the date of | March 2011, the Governor of the State Bank of Vietnam issued Directive No 01/CT-NHNN on the implementation of monetary solutions and banking activity to control inflation In this Directive, the Governor of the State Bank (SB) requests units attached to the State Bank and credit organizations to well implement

their missions, monetary solutions and banking activity; in 2011, to implement monetary policies on a tight and careful manner, to control the growth rate of credit of less than 20% and the growth rate of total means of payment at about 15%-16%:;

interest rates and exchange rates at reasonable level

- Circular No 20/2010/TT-NHNN dated 9/29/2010 on the application of the reserve requirement ratios for several credit institutions: for credit organizations which have a proportion of total outstanding loans for agricultural and rural development to the average of total outstanding loans at quarter-ends in the preceding fiscal year from 40% to 70%: The compulsory reserve ratio applicable to VND deposits of each term is 1/5 (one fifth) of the ordinary compulsory reserve ratio applicable to such term This can be considered as an advantage for Agribank in general and for Agribank Hoa Binh

in particular

In addition, the regulations about mobilization interest rates and regulations on strict penalties for credit institutions that apply the form of over-night interest rates to attract capital granted by the SB also created a safe corridor, a healthy competitive environment in the capital mobilization of credit institutions Most recently, Circular

No 19/2012/TT-NHNN dated 07/08/2012 amends and supplements the regulations on Vietnam dong mobilization rate falling to 9% per year, and removing the ceiling interest rates for term deposit of 12 months or more to facilitate credit institutions to actively balance mobilization capital for medium and long-term

Being an attached unit of Agribank, Agribank Hoa Binh also has to comply with policies and regulations issued by Agribank Therefore, a series of Directives of SB together with policies and regulations of Agribank influenced much to the investment and credit activities of Agribank Hoa Binh in 2011 offered to enterprises By early quarter IV, 2011 Agribank Hoa Binh had to stop lending activities for enterprises as its loan ratio exceeded 80% of mobilization capital in accordance with regulations of the State Bank and Agribank

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Agribank Hoa Binh has business function on a mountainous region according to the arrangement of Agribank; therefore, Agribank also applies incentive policies on capital sources to satisfy the demand of lending for agriculture and rural purposes This

is also an advantage of Agribank Hoa Binh

2.2.1.2 Industry environment (5 competition forces)

2.2.1.2.1 Bargaining power of customers

Customers of Agribank Hoa Binh are all those that have demand to use the

service and products including seller (depositors) and the buyer (borrowers) in the province of Hoa Binh

For customers who are depositors, in the past few years Agribank Hoa Binh has had the stable capital sources from the population and economic organizations that has capital sources with attractive interest rates However, the risk of switching to other banks in Vietnam in general and in Hoa Binh in particular for this type of customers is relatively high With low conversion cost, customers almost lose nothing if they want to transfer their capital out of Agribank Hoa Binh and invest into another bank in the area

For customers who are borrowers, the main customers of this type of Agribank Hoa Binh are farming households, agricultural production households, business households and enterprises operating and serving in the agricultural and rural areas As Agribank Hoa Binh has taken advantages of cheap capital sources (because there are a lot of treasuries, corporations opening their accounts, and many units that are state budget salary receivers, thus, Agribank Hoa Binh has loaned the above mentioned

customers with low interest rate The reality shows that though there are many

commercial banks operating in the area of Hoa Binh Province, the quantity of

customers Who are borrowers chosinng Agribank loa Binh has still continuously increased year by year

Especially, Agribank has been applied the credit scoring system and customers ranking since 2008, therefore, enterprises when having credit relationship with Agribank Hoa Binh are all scored and ranked in terms of credit Based on the scoring and ranking of customers, Agribank Hoa Binh will issue decision to grant credit: identifying credit level, term, interest rate, measure to ensure loans, approving or not Thus, the capacity to bargain of customers that are borrowers totally depends on the score and rank of the enterprises after Agribank Hoa Binh considers a series of factors such as scale of enterprises, financial and non-financial index of enterprises, and so on Regarding this factor, it can be said that Agribank is the dominant and active party to bargain with customers when it evaluates the bargaining power of enterprise customers

in particular and customers in general

2.2.1.2.2 Bargaining power of suppliers

Suppliers of Agribank Hoa Binh include suppliers of materials and equipment which are specific for banking sector such as ATM system, computing equipment, banking technology software companies, consulting services companies, and so forth

At present, in Hoa Binh or other neighborhood provinces and cities like Ha Noi, Phu Tho, Ha Nam, the quantity of prestigious suppliers meeting the demand of Agribank Hoa Binh is not many; therefore, the power to bargain of suppliers with particular products is rather high

Among the suppliers, the SB and Agribank play an important role SB is the provider of such transactions as depositing, withdrawing cash of all commercial banks

It is also the transaction intermediary for banks as well as the regulator of the operation

of banking system in general While Agribank is the governing body of Agribank Hoa Binh, therefore Agribank Hoa Binh is subject to the governance and influence of policies of Agribank So, the role and power of SB and Agribank are extremely

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