Developing a general business strategy of Vietnam international commercial joint stock bank (VIB) feriod 2009 - 2013

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT REPORT DEVELOPING A GENERAL BUSINESS STRATEGY OF VIETNAM INTERNATIONAL COMMERCIAL JOINT STO

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS

ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT DEVELOPING A GENERAL BUSINESS

STRATEGY OF VIETNAM INTERNATIONAL COMMERCIAL JOINT STOCK BANK (VIB) PERIOD

HANOIL 7 3009

TABLE OF CONTENT

FOREWORD

1 Reason for CHOOSING (ODÍC co HH HH ki

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CHAPTER I: GENERAL THEORIES OF BUSINESS STRATEGY

1.1— Notions and role of business stratèy in corporatÏOnS: 7 1.1.1 Some notions about business sfra{(€ØV: co n1 111 S55 7 L1.2 Role of Business Strategy wssses cans samennes cams sreoabiuitiesa Si 21056 8IS60 106005 V45 SAINGG BUNHUEI 8 1.1.3 Business strategy modelS: -c cọ HH H1 n1 ng 9 1.1.3.1 - Linear strafèy mod€Ì: - << con 1n S1 S191 9v 9 1.1.3.2 - Adaptation strategy model s0ccsecccssrscsecsccasscscescceccnseccons 10 1.1.3.3 - Interpretive strategy MOE vz sves viens news coesews cesenss snes vans swan seas sans os II 1.2- The process of developing general business straf©ØV: «.«-« 12 1.2.1 Choosing the corporation”s mission and mạn targefS: 12 D2 Ts MUSSIG 1S 5 iiss os cance ssesnaasis wens phiến san suse K44 G6528 06682086 2085 L430823514508145515 12 LePalicd SV USTs sara tờ 4259 208021000 H6 8788/0.0016083.006 4388000001200 BEEEGISGìB NØNEG.GI2'iSIHIE NHHH12 EIR SiN alas Ma 13 1.21.3 -A corporation’s business Ø0aÌ: << cĩ 9 v0 9s 13 1.22 External environmenI(: .- co cu 1n 1n n1 VY 13 1.23 A corporation’s internal environmen(: «««<««< 13 1.24 Choosing business Sfra{CØV: con HH HH HH mm VY 14 1.24.1- BC method: - SH SH SH vs 14 1.24.2 Method of SWOTT analysis model: «c2 <+ 15 1.24.3- Mc KINSEY - GENERAL ELECTRIC matrix method: 16 1,25 Performing, (he Strate@ ys css sass ows sanvc amas snes amas une ams wan saa ses ances mats Sarees 17 CHAPTER II: VIB°S ACTUAL STATE

2.1- The actual state ðof VH con HH HH KH Hinh HH 18

2.11 A general view Of VIB 0.0.0.0 cece cece ence nec eeeneeeeeneeeeeeeeeeeseeeseeeeseess 18

2.12 VIB’s commercial activity results of 3 vears 2006, 2007, 2008: 20

2.1 „Ã, VTI”š SÍYET THĂcoceaaeesioeaasiaseeiiLtg14231L10000060000008010003.65866E000806833.0515000010580765198438 22

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2,1.3.2- Organizational sfFuCfUF€, IGEWOFKE c0 0 n1 ng 23

2.1.3.3- Human F€SOUIFCC: SG 0 cọ Họ Họ họ 0 4 23 2.1.3.4- Brand name and techn0ÏÒ: c5 5 Ăn ng ng, 24 2,13:5~ Othe? MPN GUAGE Giác caŸcikiiihkdkkOiG4BA1426436013E94101435645560050415/3650081E51284488A 25

21 As VEB'S GXiStiNG ÍSGHESI:¿sccceennssseiiesdanekissiidlindiAZ5105100038105655484566684550456040006140086 Si

2.2 - Macro environment affecting VIB”s commercial activities: 28

2.2.1 Global financial crisis and world economic downfurn: 28

2.2.2 Vietnam”S €COTOIV: - co nọ HH HH HH HH Hi ni g9 29 2.3- Banking environmenf anaÌySÌS -.- «co c1 n1 34 2.3.1 Banking industry background: «««<«cc << << 34 iu 5a Lm ,HIEERLNTITf suwugrrns thay tieesdrtnrt khaX VIUSEG NHUNHE RE HISBEG RAN OO RCE TARO ERENCES EEE 34 2.3.1.2- US financial sform: cm H1 Hi Ý V986 34 2.3.1.3- Competition among banks: . .-<c << c0 sse 35 2.3.1.4- Competition with securities market: -.- << <<<<e< 35 2.3.2- Trends in banking industry - -.- - «<< s1 111 s9 36 2.3.3 Financial market anaÌySÌS: - con n9 1n 1n n1 n8, 38 2.3.4 Opportunities of banking indusfrV - «<< «<< s5 s 5s 42 2.4 VIBs position in banking industry and competifOFS -.- 44

2.4.1 Competitors’ business situation (as at 31° December 2008): 44

2.4.2 VIB’s market share in the banking system: .-. « 45

2.4.3 Comparing VIB with its competitors at present fenS€: 46 CHAPTER III: VIB'S GENERAL BUSINESS STRATEGY PERIOD 2009 -

2013, SOLUTIONS AND CONCLUSION

3.1- VIB's mission and vision period 2009 - 2()Ï 3:, Sex.) 1.1.1 Ä HTSSTB HBá na cyii1-.-x6546244412xn0833.sp644i5,ầ58L8314< kh 184558356 808/858 S898.166ã38318/5665/86ã88 50

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3.1.4 Process of developing VIB’s business strategy: ccc cee eee eee eee eee eed

3.2 Business strategy period 2009-2013 oo cece eee cece eee ee eee eee eee eea esses 1,201, MSO HEP AE SIP ALC iss asset 5 108 sane 5 Bee sec tee, 9 Sida auth Re Ri HBA Lina ek BU Bc RA Ba 53

3.2.1.1-VIB”s basic business targets up to 2(013: c c3 3.2.1.2 Management and 0pe€ratiOHS (ASKS c4

3.2.2 Personal customer busin€SS SEFACỢN con n1 XỔ

3.2.3 Corporate customer ĐbuSỈNI€SS SEFAECĐV cu nhờn 60 3v,2s5v1= SIME ĐHSÍNH€SS SỈTHÍGU suna tay nang bang sua Chai G684 it Hà NHI 4/3001 Ki°E4 SH 630604 Soe 60

3.2.3.2- Big corporate & FDI customer business strafۯV 66

3.2.4 Business strategy for Treasury and foreign currency trading group 68

3.2.5 Network development strategy .cccceceecceecesereeeeeeeesersceeseserss 68 3.3- Solutions and launch 0Ÿ eX€CufÏOH c<cc c2 55 71 3.3.1 Bring into play the essence of competitive advantages, such as: 71

3.3.2 To achieve its targets and business strategy period 2009-2013, VIB needs to develop a comprehensive action program, comprising very specific operational 10 ii) 086) 2 eeae.- Tế 3.3.2.1- Proceed with restructuring organizational model: 72

3.3.2.2- Reform branches and customer welcoming manner 76

3.3.2.3-Build a new model in business and customer serVvices: 78

3.3.2.4- Develop branches’ operation process, describe staffs’ job 79

3.3.2.5- Complete the planning process of branches .- «- 80

3.3.2.6- Improve human resource qualÏty . - «se «<< <<<5 80 3.3.2.7- Develop the project of reallocating the bank .-.- 81

3.3.2.8- Concentrate on performing strategic levers and development route .81 CONCLUSION wns cunussas vane nies oars wus ssc sams saree sae baie anne Baw was KR BIỂN A6068 1/001-3103084.30884 83

FOREWORD

1 Reason for choosing topic:

The event of Vietnam joining the World Trade Organization (WTO) marked a great turning-point for Vietham’s economy Opportunities are waiting for the enterprises who know how to invest, search and utilize However, existing alongside with Opportunities are always threats, dangers, challenges, and risks that can arise at anytime and they will make businesses face with difficulties if there is no full preparation for courses to deal with them

With competitions happening more and more severe and violent in the market, each business should prepare readily with effective courses in order to exist and develop solidly A corporation with sound and suitable business strategies, being able to lean

On internal forces to make use of opportunities coming from external environment or

to avoid risks, restrict weaknesses will certainly be strong enough to compete and stand firmly in the market

2009 is the 3rd year that Vietnam’s economy joined WTO more and more wholly, among that the most important thing is that the presence of banks with 100 percent foreign fund Opportunites and threats are waiting for banks, including Vietnamese

International Commercial Joint Stock Bank (VIB) While domestic banks are

expanding their networks, the establishment of domestic banks and the existence of banks with 100 percent foreign fund will lead to more severe competitions

For VIB, in the conditions where the economy always changes with many chances but also several challenges, the competition in banking industry is increasingly severe with the participation of foreign banks, and direct competitors is domestic commercial joint stock banks, to create a firm and stable position will require a lot of efforts to maintain the market share and develop more Nonetheless, VIB has distinguished itself as a star

in the joint stock bank system by applying modern organizational and management models, strategies of establishing brand image with the guideline “Managing according European style, trading according to Eastern philosophy” (According to a Board of Directors Chairman in power) Depending on available advantages of the brand name of VIB and internal forees which ts the determination and singleness of mind of the Board of Directors, Board of Management, and staffs, VIB was successful

IN building and carrying out the business strategy period 2003-2007,

So as to maintain its position and continue pursuing the objective of leading VIB to become one of the top five joint stock banks of Vietnam and to harmonize with the hew era — era of globalization, VIB needs to develop strategies to make it expand faster, firmly, safely and effectively together with restructuring the system corresponding to customer-oriented product lines

With these reasons, our group has decided to choose the topic “Developing a general business strategy of Vietnam International Commercial Joint Stock Bank (VIB) period 2009-2013” to do research for the capstone project of the MBA degree, Griggs University

2 Goal and meaning:

- Goal: Using researched theories combined with analyzing practices to bring up effective business strategies for VIB from now to 2013

- Meaning: According to scientific foundation, this research project came into being with the desire of contributing some strength for the chosen institution — Vietnam

International Commercial Joint Stock Bank (VIB)

3 Object and area of research:

Research object: Business strategies of businesses

Research area: Banking environment, competitors’ strategies, and business strategies of VIB

Chapter I: General theories of business strategy

Chapter Il: Analysing the actual state of VIB

Chapter Hf: Develop a general business strategies for VIB period 2009-2013,

realization solutions and conclusion.

CHAPTER I GENERAL THEORIES OF BUSINESS STRATEGY

1.1 — Notions and role of business strategy in corporations:

1.1.1 Some notions about business strategy:

The terminology “strategy” started from military field In military, strategy is defined as: the art of combining military forces, mental and economic politics mobilized to win over the enemy Though, nowadays, the term “strategy” are used frequently in business field Although it started long ago, there has not been an absolutely exact and sufficient definition for this term Some notions about business strategy are as follow According to Michearl Porter, a professor of Havard University: “Business strategy 1s the art of creating competetive edges” Like that, business strategy is one of means to compete among corporations; it is a way for corporations to attain the proposed objects

by creating competitive edges, or equivalently, by creating strengths, opportunities, dangers, challenges, etc, thus point out suitable solutions to succeed in business

As the consultation group of Boston Consulting Group (BCG) stated: “Business Sstratedy is the division of corporations’ available resources and take the competitive position.” This means that corporations, by analyzing its resources and business divisions then dividing its resources in the most effective way, point out objectives and tactics to realize those objectives with the greatest effect to generate dominance to

compete

According to Alain Charles Martinet: “Strategy is the art corporations use to prevent competition and gain success.” Hence, strategy is to sketch out firm and lasting evolvement orbits, around those orbits may be able to organize right decisions and actions of corporations

In business environment, the term “strategy” mostly arises from basic laws Yet, applying this term always fails due to lack of Knowledge about its nature and use Pheretore, itis difficult to get a united definition about “strategy” because of two reasons: (1) strategy consists different aspects, and (2) strategy has individuality, it

changes with circumstances of each business, in each typical branch However, there

are at least three types of strategy in business world, which are: strategy or normal strategy, corporate strategy, and competitive strategy

Corporate

Strategy

Strategy

Competitive ICRC

Figure 1.1: Strategy

Therefore, there are many definitions about strategy, but focused on four main areas: plan, model, position and prospect In accordance with these points of view, strategy is:

(1) A plan showing what to do from one thing to get another thing

(2) A lasting activity model, for example a company which always promotes costly products, it is using the strategy “focusing on objects with high income”

(3) Position, which indicates decisions of bringing special goods or services to special markets

(4) Future prospect, which is line of vision and orientation which helps

corporations or organizations expand

1.1.2 Role of business strategy

A defined business strategy is equivalent to corporations answering these following questions:

The corporation

- Where is it standing?

- What does it want to do?

- What does it have to do?

- What will it do?

- How will it do so?

From specifying the current standing point, developing business strategies will give us the answer for where the corporation wants to go and by which method it can

vo If any Business strategy points out objectives and directs corporations to operate effectively

Strategy helps a corporation utilize resources rationally, creating a competitive position for its products in the market, find its strengths and make use of them to create edges, also find out the disadvantages to limit and overcome them Additionally, strategy helps corporations take advantages of chances, always in an active position in face of environmental changes

These days, in the market economy where competitions among competitors inside and outside some particular industry are serious, businesses do not only have to exert all its strength to perfect its internal functions effectively, but also have to be dynamic, flexible in its activities to adapt to market’s complex changes This situation requires corporations to be more long-sighted for its own improvement A practical problem is that strategy is the factor that helps corporations improves For this reason,

it is necessary to start a plan by pointing out the future prospect, including exact position, and how it can achieve it with a carefully established plan In the long-term, everything will change Decisions and actions of the model mark a change from the beginning to the success

1.1.3 Business strategy models:

1.1.3.1 - Linear strategy model:

The linear model concentrates on planning activities A model is called linear because it comprises activities which are in sequence, oriented and in logical order of a planning process

According to linear point of view, strategy consists of: integration of decisions, operations, and plans set up and oriented to the organization’s objectives Both the objective and the method of achieving it are the result of strategic decisions In order

to achieve the objective, the organization may change its link to) surrounding environment, such as changing products, transferring markets, or carrying out other business activities Terms associated with the linear model include: forming a strategic plan, establishing the strategic sytem, and performing the strategy

The linear model describes high-level managers as people with the ability of changing organization Surrounding environment is a group of difficulties caused by competitors Through a process of appropriate decisions, the high level manager defines the target, develop alternative plans to achieve the target, assess the chance of success of each plan, and decide the plan to operate In this process, the manager

makes use of future trends and conditions benefit for commercial activities and avoid

or have methods to prevent the disadvantages As the model 1s developed for businesses to make profit, the two important conclusions considered are profit and productivity

If the purpose of the planning process is the corporation’s success, it is needed to ensure that all decisions of the top manager will be operated completely in the organization This assumption enables proposed ideas to become realistic actions The second assumption of the model starts from the characteristic of time-consuming and future directing of the planning process In other words, today’s decision are given by believing in future conditions Decisions may be carried out after a few months, or even a few years In order to believe that the time given to making decision is not wasteful, it is necessary to believe that business environmental changes are predictable One more assumption is that the most important result of a strategy is that each institution is able to define some goals and complete them

Linear model is used less and less since strategy problems are increasingly severe not only because they are connected with several management aspects, but also due to changes of technical, economic, information, social variables

1.1.3.2 - Adaptation strategy model

Adaptation strategy model is defined as being interested in improving the ability

of combining opportunities and risks of business environment with the corporation’s resources and its ability to exploit these opportunities The predicted corporation will continue to assess internal and external conditions The result of assessment are the appropriate adjustments in the organization or in related environments in order to create a suitable combination between the environment’s opportunities and risks and the corporation’s ability and resources

Adaptation strategy is) based) on) some assumptions Corporations — and

environment are connected more closely than dinear model Environment is more

10)

dynamic and more difficult to predict in adaptation model Business environment includes: competitors, trend, and relevant factors (become more and more important) While linear model assumes that corporation has to face business environment, adaptation model assumes that corporation changes in line with business environment Adaptation model uses more variables and have greater modification ability than linear model Nevertheless, many still believe that the realistic business world is much more complicated

1.1.3.3 - Interpretive strategy model

Until now, interpretive strategy model's parameters have not been completely clear However, this model is mainly based on factors of social relationship The social relationship standpoint considers a corporation as a mixture of cooperation agreement between each individual and voluntariness The existence of a corporation depends on the ability of attracting labors sufficient for suitable benefits for all parties

This model also assumes that reality is not something objective or exogenous, but

is taken shape through a process of social impacts, in there everyone’s feeling is

reliable, adjusted and replaced corresponding to others’ feelings

Strategy in interpretive model can be defined as a oriented metaphor or a Orientation frame allowing the institution’s important factors to understand it and its surrounding environment On this basis, these important factors are encouraged to believe and act in the orientation of creating beneficial effect for businesses

Interpretive strategy, like adaptation strategy, assumes that corporations and business environment relate closely to each other Still, in interpretive strategy, the corporation’s leader forms opinions of each individual in the corporation and people to

be involved as well as the corporation’s products However, the leader does not perform physical changes to the products Change in opinions leads to a greater trust for the corporation or its products About this point, interpretive model equals to adaptation model

A noticable difference between adaptation model and interpretive model is the approach to complexity of each model Adaptation model tries hard to solve the complicated problem of structure, the most significant is the conflict and changes of

demand for the corporation’s products Interpretive model emphasizes on the

complicated problem of attitude and awaremess of parties related to the corporation,

1.2- The process of developing general business strategy:

The general business strategy is outlined based on the corporation’s vision expression, have the nature of directing all the activities of the corporation and thus, have the nature of lasting strategy Consists of these following steps:

1.2.1 Choosing the corporation’s mission and main targets:

A corporation’s mission and main targets provide the background to set up the strategy The mission states the reason of an organization’s existence and shows what

it will do Main targets determine what the business wishes to satisfy in the medium- and long-term

1,2.1.1- Mission:

Mission 1s a message expressing the essential value of a business It illustrates the business’s importances and contributions in both business and life aspects; it shows the corporation’s business motto, its position in the world, and the points it commits to obey Mission has to be concise but imply adequately basic meanings, has to be be encouraging and represents a long-term stability

Some expressions about mission for reference:

Merck: We are in the business of preserving and improving human life All of Our actions must be measured by our success in achieving this

Apple: To make a contribution to the world by making tools for the mind that advance humankind

McKinsey: The purpose of McKinseyand Company is to help leading corporations and governments are more successful

1.2.1.2 -Vision:

Vision is a message specifying mission to an encouraging goal It shows the essence of vital innovations to the corporation, make the corporation believe in the future and it targets to the goal, make the impossible possible

Some expressions about vision for reference:

5 “Achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to earth’ President John Kennedy, 1961

“48 hours to assemble and deliver a car” Toyota

: “Beat Coke” Pepsi

“Maru-C™ (Eneirele Caterpillar) Komatsu

"Yamaha wo tsubusu(We wil crash squash, slauphter Yamaha) Honda

1.2.1.3 -A corporation’s business goal:

A corporation’s business goal is often its financial goal It is a specific goal accompanied by a specific point of ume For instance, “achieve xxx US dollar profit in 200x”, or “start making profit by the end of 200x”, etc

1.2.2 External environment:

The purpose of analysing external environment is to aware of opportunities and threats from the corporation’s external environment Three kinds of external environment which link with each other are: macro environment, national environment and industry environment where the corporation operates

The corporation determines opportunities and threats by analysing data about changes in the environments where it is operating or intending to enter Opportunities can include market growth potential, market gap, whether or not it is near low-cost material and labor sources with suitable skills Challenges to a corporation can be market being restricted, increasingly harsh competitions, potential policy changes, politic instability in core markets or technological innovation which makes its production means and lines have the risk of being outdated

1.2.3 A corporation’s internal environment:

The purpose of analysing internal environment is to find out a corporation’s strengths and weaknesses

By analysing a corporation’s internal environment, strengths about organizing the corporation can be skills, resources, and advantages it has over its competitors (its key abilities) such as having many talented managers, a superior technology, a well-known brand name, available cash, a good image in front of public and a large market share in core markets A corporation’s weaknesses are shown in shortcomings or flaws and skills, resources or factors that restrict its competing ability They may be ineffective distribution network, poor working relationships, lack of internationally experienced Managers or goods and services being outdated compared to competitors

Results from analysing a corporation’s internal and external environments are results

of researching and assessing business) environment generally, including business environment i some geographical boundary (politic social, economic, environmental, cultural) industry's trend (science technology, suppliers), market's state (demand, selling

ability, trend forecast), competition situation (main competitors, potential competitors, ability, strengths and weaknesses, current position and strategy pursued)

1.2.4 Choosing business strategy:

A corporation’s business strategy is the direction of improvement and establishment of the corporation’s competitive edges based on knowledge and the assessment of the situation as above steps The corporation can have many strategic

choices such as:

The most creative technology

- Lowest prices (Cost domination strategy)

- Only focus on a particular market or a particular market segment

- Only focus on a particular group of products

- Making the difference strategy

Choosing a strategy plan can be conducted by one of the following methods: 1.2.4.1- BCG method:

The criteria for valuing a corporation’s attractiveness are relative market share and the industry’s growth Ech activity will be located according to these criteria This matrix has two axes: vertical axis: growth ability of the market, and horizontal axis:

relative market share

Relative market share

High Medium Low Figure 1.2: BCG matrix

From the BCG matrix, figure corresponding to each location we have these

below strategies:

Group 1: Corporations in this square have many prospects but no competitive edges and they can give up to invest for other areas or concentrate on investing to control the market

Group 2: The corporation has high prospect and competing power The solution for it is to frequently consolidate investing effort so as to maintain its leading position Group 3: The corporation has slow growing speed but has advantages about market size The solution for it is to avoid investing too much and at the same time, estamate the withdrawing time

Group 4: The corporation has neither advantages about relative market share nor growth rate The solution for the corporation is to quickly withdraw from the market

by not gathering valuable and rare resources or reselling to a more advantageous corporation

The approaching method of BCG has many advantages and therefore, is applied widely On the one hand, this matrix make it easy to anaylize the corporation’s activities list in general It enables examining whether or not the fund flow from some activities can offset demand and whether or not new actitivites can replace degrading activities On the other hand, it enables creating objectives about activities list as well

as strategies that need to be pursued However, this method also has many disadvantages First of all, it is the difficulties in arranging activities in the four types mentioned above, or more exactly, deducing the location of activities corresponding to the applied strategy For example, when the effect of experience is low a dominant position does not have the same meaning and consequences as when experience affects prices greatly Likewise, special conditions about prices, including competitors’ prices miay offset external shortcomings in the market That is why all assumptions of BCG method must be assessed specifically and completely by other factors

1.2.4.2 Method of SWOT analysis model:

The main purpose of SWOT analysis is to identify the strategies it directs, creating an appropriation among resources, and between the corporation’s ability and the needs of the environment where the corporation Is operating

| Strencths S/O strategies S/T strategies

|5

Figure 1.3: SWOT matrix

SO: strategies are obtained by combining the corporation’s main strengths and opportunities An important thing 1š that the corporation has to use its strengths to exploit Opportunities

ST: strategies are obtained by combining the corporation’s strengths and threats Here, the corporation needs to make use of its strengths to win over threats

OW: strategies are obtained when the corporation uses every possible Opportunity to overcome its Weaknesses

WT: strategies are obtained when the corporation attempts to restrict weaknesses

in order to prevent threats

A specific example for SWOT analysis is the case of Walt Disney Company Up

to 1992, Walt Disney had always been successful in Disneyland theme parks in

Anaheim, California (1955), Florida (1970), and Tokyo (1983) In 1992, Disney

continued its success in Paris due to correct practical and realizable results of SWOT analysis process, namely:

S: The fame of cartoon characters, famous Walt Disney brand name, strong financial potential

W: The knowledge about French culture and interest was not complete

O: France’s geographic location was favorable (central of Europe); French

government had encouraging and supporting measures for transportation, land’s price, share contributing

T: The competition of other theme parks in Paris

1.2.4.3- Mc KINSEY - GENERAL ELECTRIC matrix method:

This model was built based on two norms: market attractiveness and competitive position These two norms are divided into three levels: strong — medium — weak Each aspect enables locating all activities in the table For example, the activity SBU] develops in a market with much attraction and high competitive position One of the activities that should be brought forward is to maintain these activities at this position, The activity SBU3 does not develop in the same kind of market The market attractiveness Is very poor However, good competitive position shows that it does not need to spend too much effort to sustain the Maximum profits

The task of analyzing internal and external environments and then choosing a

strategy 1s considered to be developing a strategy

1.2.5 Performing the strategy:

It is an operational plan setting up the activities that the corporation will carry out

together with progress achievement at each time point which the corporation needs so

as to achieve the joint target It also includes the design of the organizational structure and appropriate control system in order to bring the strategy to performing

The process of forming a business strategy mentioned above can be summarized

in the following diagram:

CHAPTER I

VIB’S ACTUAL STATE

As we all know, a bank 1s a special corporation because it trades and provides a very special type of goods — it is monetary finance Banking operations are to supply monetary finance to corporations, and is a blood vessel that feeds the economy Therefore, most of current factors affecting Vietnam’s economy are the factors that affect current business activities at some commercial banks For this reason, under the angle of the topic, we will mention some of the following problems about VIB in the situation when Vietnam’s economy has joined WTO:

Analyzing actual state of VIB Therein analyses VIB’s business situation and result in the nearest three years (2006, 2007, 2008) VIB’s strengths and weaknesses Analyzing current business environment of banking industry Then, point out

opportunities and threats for VIB’s business activities

Based on the above analyzing results, our group conclude that VIB need to have changes in its business strategies and restructure the bank and relocate brand name appropriate to current reality and future prospects Particularly when the global economy is under crisis and especially the financial crisis happening in the US and many other countries in the world

2.1- The actual state of VIB

2.1.1 A general view of VIB

Vietnam International Commercial Joint Stock Bank (abbreviated as Vietnam

International Bank — VIB)’s head office is located at 198B Tay Son street, Dong Da

district, Hanoi; the bank was established under the Decision No 22/QD/NHS5 dated

2Šth Januray 1996 by the Governor of State Bank of Vietnam Founders of VIB consist of successful individuals and businessmen in the domestic as well as foreign markets; Bank for Foreign Trade of Vietnam; Vietnam Bank for Rural and Agricultural Development

VIB is persisting strengthening its position in Vietnam’s financial market Since the inauguration day, with its initial charter capital of SO billion Vietnam dong, VIB has been developing to become one of the leading domestic financial institutions of

Vietnam

VIB provides a range of package financial products and services for customers, core ones are small and medium corporations with healthy operations and individuals and households with stable incomes By 30th April 2009, VIB’s charter capital hit 2,000 billion VND; total assets were nearly 40,000 billion VND VIB has always been rated best by State Bank of Vietnam according to assessment standards of Vietnam's Bank system for many successive years

By 30th May 2009, beside the head office in Hanot, VIB has over 100 branches

and transaction offices in Hanoi, Ho Chi Minh City, Hai Phong, Quang Ninh, Hai Duong, Vinh Phuc, Phu Tho, Thai Nguyen, Thai Binh, Ha Tay, Thanh Hoa, Nghe An, Hue, Da Nang, Quang Ngai, Binh Dinh, Khanh Hoa, Dac Lac, Dong Nai, Binh Duong, Vung Tau, Can Tho, An Giang, Kien Giang, Tay Ninh

With the motto “Values and values for you”, VIB never stops adding the value of customers, partners, its staffs and shareholders

Banking services developed and provided by VIB for customers include relating to the banking services and its structure: See more information in Appendices

In conclusion, after almost 13 years of operating, VIB’s size of business has expanded significantly Targets in total assets, capital mobilized from residents and economic organizations, credit liabilities of economic organizations and individuals, profits before tax have grown stably Especially, from 2003 to now, VIB’s next year average growth rate has always doubled previous year’s Since the inauguration day, with its Initial charter capital of 50 billion VND and 23 staffs, now, VIB’s total assets have grown to nearly 35,000 billion VND; owner’s equity has reached 2,500 billion VND; number of staffs has raised to 2,500, network has been expanded continuously with 107 transaction offices nationalwide equipped with innovative facilities and technology system

From 2003 to 2007, VIB has successfully developed its business strategy In addition to achieved operating results, during this period, VIB successtully conducted core-banking technology modernization project in the whole system Depending on innovative technology, VIB ’s products and services has been diversified by steps with

services: Mobile Banking Internet Banking VIB4U Domestic debit) cards

Internauional credit cards Phe bank's card services were marked development when

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VIB established Card center and issued independently domestic debit cards Values, officially became | of 6 banks in the International Card Organization MasterCard VIB has become one of top six commercial joint stock banks in Vietnam During its history, VIB was awarded twice with “Thuong hieu manh Vietnam” (Vietnamese strong brand names)

2.1.2 VIB’s commercial activity results of 3 years 2006, 2007, 2008:

Tables 2.1 are some basic targets indicating ViB’s operational results of the nearest 3 years:

Table 2.1: VIB’s commercial activity results of 3 years 2006, 2007, 2008

Figures in: billions VND

compared to 2007°s total Liabilities: bad debts rose by S2°o compared to 2007: net

20

incomes were 45% of the target, increased by 39% compared to 2007’s pure incomes; profits before tax achieved only 32% of the target, and equalled 52% of 2007’s profits before tax; VIB developed 2] more new business units and expanded its covered area

to 27 cities and provinces nationalwide

2008"s business results were not as expected because of some major reasons, such as:

- Business environment affected by global economic crisis as well as Vietnam’s economic downturn, the instability of macroeconomy and financial market, and competitions have influenced deeply and completely, and brought pressures to VIB’s commercial activities

- VIB itself also shows some drawbacks in its commercial activities and administering the organization, for instance: the structure of investment portfolio is not appropriate (large bond investment in the state of complex interest movements); the structure of medium and long-term loans is high with nearly 40%; overdue debts have increased notably partially due to poor customer quality; working behaviour of a considerably large number of staffs does not satisfy basic requirements and affects quality of work as well as VIB’s image; various standards of a good system have not been set up seriously; developing plans do not take into account capability and market trend

In the market’s tough condition, many corporations even went bankrupt and many face extreme difficulties, VIB’s commercial activities in 2008 were still profitable and safe In 2008, VIB gathered its resources to carry out a range of Important business development programs, such as: thoroughly check to restructure corporate customers base, expand import and export customers through the Customs project, strongly improve commercial activities with big corporate customers, domestic and international financial institutions, form e-banking, issue Chip Mastercard Card, optimize the effectiveness of credit portfolio, correct: customer policies and credit policies flexible and feasible to market, step up foreign trading activities, focus on raising capital with many programs and means, and optimize the profitability of fund, develop new products Realized means are:

- Closely control the capital in order to continue ensuring high liquidity Intensity control of market risks and operational risks Concentrate on promoting capital raising

Optimize capital and using capital Searching for cheap sources of capital mobilization to reduce costs of capital

- Credit growth ts up to controlable level, on the basis of restructuring customer base to select high quality and core customers; Promote good quality new customers and diversified transactions, especially import and export customers, intensify selling core products such as Currency Swap, Factoring, Trade Finance, Cash Management, etc Control credit quality, prevent overdue debts and recover bad devts, ensure no more than 2% bad debt ratio Promote actively big corporate operations, especially capital mobilization and foreign exchange Intensify marketing and selling E-banking product Strengthen customer services and manage quality of services Complete the

Organizational structure of business divisions in the orientation of freeing resources

Organize support functions of departments, office spaces and head office in the Orientation of the function providing systematic products for internal customers Increase expenditure efficiency, practise economy, cut down operational costs with the target of cutting 5% down on operational costs

Establish Training center, increase training mission, especially English training program

In addition to achieved business results, VIB have developed well in many aspects, such as: brand name is initially recognized widely, customer base develops strongly, technology system is modernized, operational network is enlarged, staffs grow continuously, banking management skills are improved These are private strengths which, if promoted well, will become competitive advantages bringing about good position and operational efficiency in banking industry We will analyse about these strengths deeper in the below part

2.1.3 VIB’s strengths:

Over years of operating, VIB has prepared for itself the ability of developing long-term strategy and vision Some strengths that VIB has put in a lot of efforts to develop and promote effectively, creating the difference in the market are:

2.1,3.1- Financial resources:

With an initial charter capital of SO billion dong in 1996, VIB has achieved 2.000 billion dong and is expected to achieve 3.000 billion dong in 2009, This is a factor deciding the development of VIB s business size such as: enlarge the operational

network, credit growth, invest in fixed assets, invest in real estate and other financial industries This source of capital is set up by retained annual profits and paid-in capital, contributed capital by shareholders, especially big shareholders with high commitment of continuing developing VIB firmly and lastingly VIB has built and established a strong, prestigious brand name, that has brought about a huge source of deposits from population and domestic organizations, and even other credit organizations to VIB

2.1.3.2- Organizational structure, network:

At present, VIB has established operational network throughout the countries with 107 branches and transaction points, which locate at locations essential and favorable to the growth of size of business These commercial office space all have adequate facilities, comprehensive and innovative equipments, which are designed in the whole system to help customers easily recognized and convenient in transactions VIB’s organizational structure is designed in both horizontal and vertical matrix model by means of operations departments, management system is streamlined and flexible, all departments are self-motivated in operating Board of supervisory and internal audit division is relatively independent with Board of Directors and Board of Management, and thus operate very effectively, discover and prevent risks at the right time

Effective organizational structure has (1) ALCO committee — manage the bank’s balance sheet according to VIB’s development policy; administer liquidity risks and miarket risks associated with its activities; maximize the balance sheet’s income,

increase shareholders’ business value, ensure that the credit organization obey law

policies on margin of safety ratio in business; and (2) credit committee — approve orientations and liability structure of VIB’s overall system in product, occupational field, business area; decide credit policies including customer policy based on the rules

of risks, growth and profits for the bank; adopt lending interest rate policy; decide on credit risk alternative policies and approve investment credit items

2 1,3.3- Human resource:

With its credit and brand name, VIB has attracted many high quality staffs with many years of experience at presugious domestic banks and foreign banks operating in Vietnam, forming a talented managment team, staffs who are young, enthusiastic,

grow up over ume, become attached and work at VIB have qualifications, knowledge

and skills to satisft the bank’s requirements A high quality human resource does not only satisfy the current need of development, but is also a stable foundation for the bank’s long-term development

VIB creates a healthy and open working environment which is not limited by the relationship between management level and staffs, creates conditions for staffs to ultimately promote their abilities; always motivate the thinking movement and promote new ideas in business and management; bravely apply developed countries’ interesting modern knowledge and models to VIB’s commercial activities and is determined to pursue them if they are appropriate Typically, VIB set up relatively successfully the system restructuring in period 2003-2007 The staffs really keep their mind on their work in VIB’s environment because they are recognized, evaluated and promoted in occupation, and therefore, they are attached to the bank and put their belief in its success

VIB is gradually forming an evaluation system for staffs’ working efficiency KPI that helps management task, evaluate staffs explicitly and fairly, creates opportunities and motivation for staffs to work and have a long-term attachment with VIB through the miechanism of reward, discipline, give authorities and responsibilities to staffs, training

2 1.3.4- Brand name and technology:

The brand name VIB was established seriously and methodically, from designing logo, slogan, business identity system, especially the determination and singleness of mind of the Board of Directors, Board of Management and all staffs in their work in order to bring the bank to the top position in the market With the motto “Values and values for you” and target of operations “Aiming at customers”, VIB have truly been recognized by the majority of the public and started to be in customers’ subconscience When demand for transacting with banks arises

With the guideline that strong technology system is a competitive advantage, VIB have continuously increased investment in banking technology to satisfy the development speed, improve quality of services and be highly valued by customers A range of e-banking products are created on the technological foundation such as: mobile banking, internet banking, online banking service VIBIU,

After a year of preparing and setting up on 7th June 2006, VIB succeeded in

developing the banking technology modernization project with Oracal’s core-banking,

updated software application Symbols, ensuring good abilities to manage and apply, high security feature, and online trading: giving good support to management and premoting customers; serving and supporting efficiently report activities; timely satsfying demands for information and data for the management level

VIB’s services is relatively diversified and realistic to each individual customers anc bring profits to the bank, namely: commercial support, guarantee service, setilement service, foreign exchange service, loans service, business support service for corporations and organizations; savings service, consumer loans, settlement service, confirmation service, card service (has its own ATM system and is an official memeber of the international card organization Mastercard), overseas national currency exchange for personal customers; remittance service, loans co-sponsor service, foreign exchange service for banks, financial institutions and non-financial imstitutions; investment service and service for investors in the real estate and securities fields

VIB applied a management model according to gathering mode in Treasury, credit approvement, commercial support and system support, allowing management to

be favourable, and restricting systematic risks, liquidity risks

Each business divisions issue periodic newsletters, such as: internal newsletters, Treasury newsletter, industry newsletters (real estate, iron and_ steel, capital construction, transportation ), providing information, analysis of industries, business environment for managament and business department through that, manage the

business strategy

2 1.3.5- Other strengths:

Having built a customer credit rating system based on international standards and suutable for State Bank of Vietnam helps promote customers steadily and manage risks effectively

With the target of becoming the leading bank in’ Vietnam, providing mMutipurpose, package banking & financial services for main customers in Vietnam's main economic areas, VIB established its orientation and focuses on its operations on the customers who are small and medium businesses, personal customers Additionally, with the service target of “Aiming at customers”, VIB released specific poheies and operational schedule to attract the majority of these customers Namely:

- Flexible and attractive loan and mobilization policies

- Every year, organize Customer conference to express attitude to the customers who are attached and contribute to VIB’s development; receive advices on inadequate issues that have not satisfied all demands of customers so as to have innovations in process and appropriate policies

- Is the first commercial joint stock bank that hold a ceremony to honor 35 model corporate customers in 2008 representing thousands of corporate customers related to VIB, according to standards such as: net revenue brought to VIB in the year, its prospect that VIB can develop in 2009 and in the future, relationship period and its cooperation with VIB, its effective range in the market, no overdue debts Through this event, VIB wants to direct to the image of the best bank for corporations, also spread VIB’s image and brand name to current and potential corporate customers The event

is expected to be hold every year to create attachment and maintain good relationships between VIB and its customers

- Regularly organize promotion programs for customers using VIB’s services for the first time, such as: making deposits to win cars, gold, abroad travel tours; using Mastercard to win abroad travel tours, high-tech gifts

- The result is that VIB has established a wide, stable and very promising customer base Beside that, VIB has also established strategic relationship with many groups and members of leading groups, for example: petrol group, coal and mineral group, PVFC, PVI, VINASHIN creating an important customer base for VIB’s development in the future

- PR activities and the promotion for its brand name, products, services are organized and operated effectively Established diversified and effective news channels to promote VIB such as: television channel, magazines about economy, industries Especially VIB published internal newsletters once a month of which look and content are compiled with much care and usefully Moreover, everyday, there are news reviews about developments of the world’s economy, domestic economy, banking industry, news about competitors’ mobilization and lending interest rates, news about some currently hot markets such as real estate, foreign currency, gold PR also support: efficiently for business units by designing posters, banderols to

advertise its products and services to public

- However, beside VIB’s obtained achievements and available strengths, it also shows some limitations in commercial activities and system administration that VIB needs to admit seriously to overcome and restrict them

2.1.4 VIB’s existing issues:

Although charter capital hit 2,000 billion VND, in order to develop more in size

to reach the goal of becoming the leading bank in Vietnam, it is necessary to increase the charter capital to 3,000 billion VND or even 5,000 billion VND Thus, in an economic downturn situation like today, securities market has not actually been stable yet, and with VIB’s current shareholders, it is very difficult to raise charter capital Yet, to achieve that, it is needed to have external forces which is foreign banks and financial organizations joinly contributing funds to buy shares, joinly consulting in banking management, supporting technology so that VIB’s targets are realized faster and more effectively At the same time, the competitors taking advantage of Opportunities have gained high quality foreign strategic partners, so they have gained advantages and risen, for example, ACB has Standard Chartered Bank, a bank famous for retail banking products; Sacombank has ANZ bank, Dragon Financial Holdings and IFC; Techcombank has the world’s leading bank HSBC, and some other joint stock banks

About operations — investment structure is inappropriate and operational efficiency is low, whereas its competitors with equivalent size make more profits N.amely, large bond investment portfolio leading VIB to underwrite the difference in interest rates; high medium and long-tern credit structure with nearly 40% of total credit liabilities, while interest rate is lower than VIB’s cost of capital; notably increasing Overdue debts partially due to poor customer quality and partially because

V IB’s risks 1s not truly closely managed

About system administration — gaps that can lead to operational risks in many fields; inappropriate quality of services because working behaviour of a considerably lairge proportion of staffs does not satisfy basic requirements and affects the quality of work as well as VIB’s image, some staffs of head office’s departments still lack realise experience so supporting business units is not effective; many standards of a good system that are not established seriously,

Setting up many big essential projects when capable staffs are concentrating on operations, thus have to hold several tasks at the same time leads to low operational efficiency VIB’s policies change frequently following the market movements during recent time period make customers unable to follow, leading to worsened VIB’s image and customers’ trust in VIB and there is a possibility that they will eventually switch

to other banks

Each business division has only one division director, so when business units need the support of high level leaders to contact and negotiate with a large and prestigious customer, they are not responded in time and have to struggle by their own and sometimes it may be ineffective and a waste of time

Furthermore, subjective factors affect VIB’s unsatisfactory operational efficiency, since May 2008, negative changes in developments of the world’s economy and domestic economy and the unstabilitu of financial market, competitions have affected deeply and comprehensively, and created pressures on VIB’s commercial activities

2.2 - Macro environment affecting VIB’s commercial activities:

2.2.1 Global financial crisis and world economic downturn:

In 2008, The World Economy witnessed a year full of changes originated from subprime loans of housing market in the US, leading to a financial crisis spread all over the world A series of big and prestigious financial institutions fell into crisis and had to ask for government support such as Citigroup, America Express Just in the

US, from the beginning of 2008 to the present, 25 banks was forced to close down Stagnant production and recordly high unemployment rate made a mass of big economies in the world fall into crisis such as the US, Germany, Japan, South Korea, Singapore In order to save the economy from crisis, many governments released a series of solutions, typically, FED lowered USD interest rate to 0-0.25%, Japan lowered Yen interest rate to 0.1%, ECB lowered EUR interest rate to 2.5% to stimulate economic growth Moreover, billions dollars solution packs were issued constantly by governments, eventhough at the present, global financial crisis has not shown a signal

of stopping and is expected to affect more strong ly in 2009, That affects greatly and strongly to Vietnam's economy, of Which main incomes are from export Plus, it will

make many import and export firms go bankrupt Therefore, the bank’s bad debts will

rise significantly

The world economic forecast of world’s top economists Is:

- The world economy continues to be negatively affected by subprime loan crisis and a massive collapse of the world’s financial system GDP ts expected to be: 3.4% in

2008, 3.0%-3.5% in 2009-2010, 3.5%-4.0% in 2011-2013

- Asian economy develops slower; US, Japan and Europe growth ts low

Inflation tends to rise

- USD may recover compared to euro and other strong currencies

- The world’s gloomy securities market may recover in 2010

- Gold price movement is complicated and affects the banking & financial market

- Oil price tends to move irregularly and at a high level

- Food and energy crisis are pushing the world to the risk of recession

2.2.2 Vietnam’s economy:

When the world situation was changing complicatedly and unexpectedly, crude oil price and many materials and other goods prices in the world market increased noticeably in mid-year months bringing about a significant rise in prices of most of domestic goods, inflation occurs in many countries in the world; global financial crisis led to recession of many big economy and weakening world economy, natural disasters, epidemic disasters to crop plants and domestic animals happening constantly

in the whole country affect greatly to production and residential life, then our couittry's economy and society in 2008 was affected notably

In 2008, GDP fell to 6.28% Inflation increased to a record high of 19.89% if compared to December 2007, and approximately 23% if compared to 2007’s CPI In

2008, State Bank of Vietnam changed base interest rate eight times, at some time it was 14% Vietnam’s inflation was above 20% in 10 months in 2008 Therefore, the government used eight solutions and methods to restrain and prevent inflation In there, used the tightening monetary policy That is using interest rate instrument (raise saviigs interest rate) to attract money from circular flow to banks Restrict loans to restain inflation This method will affect liquidity and business results in 2008 of commercial banks

Furthermore, Ministry of Politics, National Assembly and the Government quickly considered the situation and issued many guidance documents related to the

coultry s economic and social development in 2008 Owing to timely guidance and

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leading of the Party, National Assembly, and Government as above; the effort and the initiative in Overcoming difficulties of Ministries, Industries, locals, groups, firms, production campus and all people, our country’s economy — society in 2008 gradually overcame difficulties, challenges, economic growth was better, inflation was restrained, social welfare was assured, many urgent social problems were continually solved effectively

Forecast of Vietnam’s key economic indicators 2008-2013

Vietnam’s economy has joined WTO relatively widely and deeply For this reason, together with the world economy’s situation as above, they will affect directly

to Vietnam’s economy Economists released forecast of Vietnam’s keyeconomic indicators 2008-2013 through the table 2.2:

Table 2.2: Forecast of Vietnam’s key economic indicators 2008-2013

16.5% - 14.5% - Interest rate 10% - 14%] 8% - 12% | 8% - 12% | 8% - 12%

FI (billion USD) 3 — 4 billion 7 — 10 billion

Gold price (million

17-19} 18-20 | 1.9~-2.1 | 20-2.2 | 2.0-2.3 |] 2.1-2.3 VND)

Developing|Developing

Developing

actively urban areasfurban areas

Forecast of politic — social — law environment

In the economy market in Vietnam's socialist capitalism orientation, politic, social and law environment are vital factors that can affect any particular corporations, especially banking operations Therefore, with experience of more than 20 years of Vietnam renovation (from 1986-2006), we can forecast Vietnam’s politic, social, and

law environment in the future as below:

Politic regulation is stable

Society is stable, advantageous for commercial activities Intellectual standards of

the people improve more and more Mixed Western trend, especially in young people become popular

Vietnam is having open policies and big innovation in the law system However, legislative nature is low

Laws on credit institution will be modified in the future in the orientation of applying international practices (OECD’s rules on banking management, Basel II’s

rules of the Committee on Banking Supervision)

Administrative system is still heavy, bureaucratic and ineffective

State-owned enterprise network operates ineffectively but still has a wide effective range owing to support of the State The equalization of state-owned enterprises happens faster and faster

Small and medium firms rise strongly but unstably

Forecast of technology environment:

Goals, direction of developing Vietnam’s information technology and communications up to 2010 and orientation of development to 2020 are defined as follow:

Forming and developing E-Vietnam along with E-citizen, E-government, E- corporation, E-transaction and E-commerce to attain average and fair standards in ASEAN area by 2010

By 2010, density of telephones will reach 32-42 phones/100 people, in that density

of landline telephones will be 14-16 phones) 100 people: density of Internet subscribers will be 8-12 subscribers person, rate of using internet will be 25-35%;

average density of personal computers will be over 10 computers’ 100) people

100% of communes will have telephones, 70% of communes will have internet access point, 100% of suburban districts and most communes in main economic zones Will be provided broadband internet service

- By 2020, density of telephones will reach over 50 phones/100 people, in there density of landline telephones will be 20 phones/100 people and mobilephones will

be done through e-transaction and commerce network E-transaction and commerce

by 2010 will increase ten times as they were in 2002

- All Ministries, industries, state administrative bodies, governments at province and district levels will be connected broadband internet

* Forecast of demography:

Age structure of the population: Vietnam has the second youngest population

in Asia and 57% o the population are under 25 years old Vietnam’s population increased very slowly in previous centuries, and has started to increase rapidly since 20th century like the world’s general trend, but there are some distinguished traits In

1921 Vietnam’s population was only 15.6 million people, 1939: 19.6 millioin, 2000: 77.6 million, and in 2008 it was almost 86.2 million Vietnam became a country too little land too many people (in nearly 200 countries and territories, Vietnam ranks 65th

in toal area, 13th in population, and its population density exceeded 260 peopel/km2 — ranks 35th in the world) Vietnam’s population is in the young population group (in

2005, Vietnam’s rate of under 15-year-old people was 26.3%, in Asia: 21%, in Europe: 16%) is a abundant human resource, an economic prospect to our country

(Source Economy and Forecast magazine issue 3 February 2009)

Sex structure of population: The women labout force is at third place and tends

to be increasingly vital Now, Vietnames women contribute a large share in the development history of the country, expressed in the number of women accounting for

a large proportion of the labor force With over 50° of the population and nearly 50°

of the social labor foree, more and more women participate in most aspects of the

social life and hold important positions in the state apparatus Currently there are 33.1% women members in the National Assembly (12th term) — highest in Asia and 1s one of countries with the highest level of Women members in the National Assembly

in the world; women participating in all levels of people’s council make up over 20% More than 90% of women can read and write The rate of university graduated women

IS 36.24%, master: 33.95%, PhD: 25.69% Women holds the upper hand in some industries such as education, health, and service In professional work, women account for the majority in literary, linguistics, medical and pharmacy, social science, natural science and economics subjects Women’s total woking hours (both at home and outside) are much higher than of men

Urban/Rural population structure: The percentage of urban population is 73%, among that 72% gather in big cities According to General Statistics Office of Vietnam, in 2005, Vietnam was the 13th most populus country in the world with 83,119,900 people, among those, 27% live in urban areas and 73% live in rural areas The annual population growth rate is 1.18% The most crowded cities in Vietnam are

Ho Chi Minh city and Hanoi capital

Almost all cities in the country are in high urbanization trend Therefore, population in these areas will increase more and more quickly There is currently a rural to urban migration After two phases of the census activity in 1979 and 1989, the population growth rate was 2.18% Natural growth rate in 1999 was 0.9%, and mechanic growth rate was 1.64% Population living in cities is not distributed evenly: the percentage of urban population is 73%, among that 72% gather in big cities

* Consumption trend:

For the consumption trend that banks can aim at in the future, we have the following figures: Using the rate of 100%, service usage or consumption level in daily life has the following relative rates:

Vietnam’s population ts at rank 13th in the world with 83 million people, among that, 73% live in rural areas In 2020, Vietnham’s population is expected to surpass Japan (a country with decreasing population) and rank 4th in Asia, after China, India, ane Indonesia Population growth rate will bring about some new consumption trends ané changes in the next 10 years A strong increase in labor force (people who give consumption decisions) and small households will stimulate consumption The consumption economy will become a large factor in economic overview Population growth and rural to urban migration are expected to bring Vietnam’s consumption economy to new heights

Currently, 80% of Vietnames consumers tend to shop at supermarkets and high- class shopping centers Modern shopping habit increased from 9% in 2005 to 14% in 20C7 and is expected to reach 24% in 2010

2.3- Banking environment analysis

2.3.1 Banking industry background:

In 2008, banking industry went through many tough changes

2.3.1.1- Inflation:

Inflation was high at the beginning of the year (according to rough calculation, Vietnam’s inflation this year is 24%), thus tightening money caused significant proslems to banks Firstly: they had to increase borrowing interest rates, and thus increased lending interest rates High lending interest rates made fewer firms borrow, obs:ructing banks’ business Secondly: Since interest rates were high, debtors’ ability

to pay diminished, reclamation of debts became more difficult, bad debts increased, banxs’ risks increased Thirdly: Due to the second reason, banks became reluctant to lend, money that is not used in circular flow became useless money, increasing the cos’s for banks

2 3.1.2- US financial storm:

Near the end of the year, banking & financial industry received information about the financial storm in US Yet, it did not affect Vietnam’s banking industry and Wias even good news Good news is: When looking at banking industry crisis in US, Vienam’s banks would consider and review their business methods They would be more cautious with their loans; find means to reduce risks in lending process: beware

and immunize against investment or lending projects in which bad debts are high:

concentrate on sections that are profitable, have high possibility to pay back capital and can develop in the future

2.3.1.3- Competition among banks:

First is the competition between domestic banks and foreign banks More and more foreign banks come to Vietnam Their advantages are large capital fund, and financial and management potential HSBC is the most active foreign bank now It has just been given permission by State Bank of Vietnam to set up a subsidiary bank with 100% foreign fund in Vietnam The establishment of a subsidiary bank will allow HSBC to enlarge its distribution network to both existing and new customers HSBC became the first foreign bank in Vietnam, which hold 20% shares in a domestic bank after increasing its possessed shares in Techcombank from 14.4% to 20% This enabled HSBC to expand its effective range and range of activities Competitive pressures to domestic banks increase with acceleration After HSBC, ANZ, and Standard Chartered Bank will establish their subsidiary with 100% foreign fund

Competition among domestic banks: It is obvious but there is a new trend of cooperating among domestic banks The most obvious thing is “ATM alliance” Holding Techcombank’s ATM, you still can withdraw money from Vietcombank’s cash machine This increases the range of activities, competitive ability and customer attractiveness more than banks outside of the alliance

Nevertheless, competitions either between domestic — foreign or domestic — domestic are still necessary Because of that, banks will on and on innovate and improve quality of services, will always be creative to satisfy the requirements of the nation, people and corporations

2.3.1.4- Competition with securities market:

Stock increasingly appears to be banks direct competitor in the sense of mobilizing capital in population Before, when there is no stock, people will deposit their idle money to banks to receive interests But now, stock reduces banks’ idle capital mobilization People with idle money are willing to invest in stock with the hope o° making more profits than depositing in banks (though risks are higher) Moreover, corporations, apart from mobilizing capital by borrowing from banks, can issue stock to the market [tis a good way to raise capital

However, talking about difficulties, it is needed to mention achievements or satsfactory signs that banking industry attained in 2008 In 2008, banking industry fought with inflation and US’s credit crunch, thus did not achieve the expected development Satisfactory signs that can easily be seen are together with the central bark, banks restrained inflation actively and effectively

Issues that need to be corrected

Need to widen bank branches more At the present, they are only concentrated in big cities Range of activities is still small

Issue that needs immediate correction is the ATM network There are too few automatic cash points; each time withdrawing is entire waiting Nowadays, companies pay staffs’ salaries through ATM network, so it is necessary to improve the quality of ATM network, avoid the waiting and running out of money while waiting to withdraw Must have wicer ATM alliance Perhaps domestic banks need to cooperate more about this issue Must have a risk management system The lesson from US finance may be an expensive one for banking industry High profits always come with high risks, a thousand year lesson Today, banks participate in real estate, stock and gold markets Thhcy are actually markets that are highly profitable and difficult to ignore, yet they are

an ssue of interest Maybe should have a risk management or minimization system Unvwersities on economics only have a subject about risk management but have not had a risk management major Maybe this should be considered If banking industry and universities jointly train students about risk management, it is the best These stiucents after graduating can work at the banks where they are trained

2 32- Trends in banking industry

The first move that bank will make is to cut lending interest rates, loosen money The proof is that banks is getting ready to cut interest rates when base interest rate fell

to 13% and currently is 7% per year, and from 23" January 2009, the Prime Minister deeded to subsidies lending interest rate of 4% for organizations, individuals borowing money from banks for production and business These solutions will help buisnesses solve problems, easily approach fund to maintain production and continue investing in development, take advantage of opportunities to invest in technological Innevaton, speed up investment rate of progress in Main infrastructure projects

However, loans will be supervised more carefully due to the after-effect and lesson from US crisis

From recent US financial storm and the tightening monetary policy of the government and central bank, small banks are afflicted and in 2009, these small and weak banks will merge This mergence has the following advantages:

- Firstly: Strengthen domestic banking system

- Secondly: The government’s macro management through banks will be easier because there will be fewer banks to manage

- Thirdly: Create new strength for merged banks; enlarge size and range of activities

However, banking industry is one of sensitive occupations, thus the mergence can only happen in one or two year, when the banking industry have opened more doors according to agreement with WTO Currently Vietnam is having too many banks without any truly strong bank of international stature Overall, banks have emulated at enlarging network size to raise more capital (developing in width) This leads to the situation where banks violently competing with each other in credit activity forget complementary products and services (depth) Simultaneously, banks enlarge their size, but due to the lack of high quality staffs, management activities cannot keep pace with development scale

Banking services will be strengthened; banks will pay more attention to retail section Therein, services of securities lending, buying gold, or buying real estate will

be cared for and developed more Besides, there will be better personal customer services In 2009, retail section will be the most competitive section among commercial banks There will be a range of new products released when large investment sections are having many hidden high risks

In 2009, commercial banks together with central bank may join the exchange rate adjustment Now, USD is raising compare to domestic currency (1.e | USD can be exchanged for more VND than before), and it will affect export (1 USD can be exchanged for more VND so people will want to export more to get foreign currencies and exchanging to domestic currency to use will be more profitable) At that time, there will be more foreign currencies in the circular flow, and therefore, exchange rate will fall, affecting badly to export For this reason, central bank and commercial banks

wil contribute in the exchange rate stabilization in the market Then, there will be a difference in exchange rate, but after that, it will be stabilized eventually This may be

a good time for people who want to speculate in USD

2009 is a year of taking precautions against banks’ loans Banks will not be wiling to lend easily but will consider more carefully This will make banks more stable, investment will not be dispersed but focused, thus profitability will be better, unrecessary risks will also be avoided In 2009, oil price will decrease slightly, and thea stable for a long time This will be a good time for domestic corporations to invest and develop When talking about investment, people will think about banks with loan capital Banks will be busy with considering their loans and banks’ profits will increase significantly It may not be splendid but the possibility of capital recovery wil be high and money will be loosened

2.33 Financial market analysis:

In 2008, with the declining level of real estate market, doubtful debts increased

notably with bad debts in the whole banking system of 43.500 billion VND at the end

of the year, 3.5% of total credit liabilities However, this may not be the conclusive figure, when many banks have restructured debts and debt terms to reduce bad deb:s Moreover, corporations will be affected by hardship in 2008, leading to diminishing quality of credit in the future

The possibility of increasing bad debts in 2009 can be taken into account Many ex.perts reckon that in 2009, banks will face changes in monetary policies of the State Bark of Vietnam in order to stimulate production, and prevent economic recession The State Bank of Vietnam will control more closely credit quality, credit liabilities cannot be as hot as 2007 In the short term, when interest rates guided by the Prime Mirister will fall, the problem of lending and mobilization will be more difficult With less attractive mobilization interest rates than investment opportunities in stock market anid gold front offices, and opportunities of exploiting interest rate movements, banks have to protect other added value to keep and attract customers On the other hand, with re-lending policies to stimulate economic growth, banks with fast credit growth will have to reconsider the whole selection mechanism applied for loans to see Whither or not itis sufficiently strong and sate

In 2009, domestic banks will have to officially face the competition with five banks with 100% foreign funds With pressures of enlarging network, improving technology, adding service quality, facing displacements of money market, exchange rates, etc, 2009 is considered a year of selecting banks

In the banking aspect, the current economic crisis is an opportunity for many companies to precisely aware of future development strategy This is also the time for banks to research and return to their actual business advantages Nonetheless, in the process of developing global competitive strategies, at commercial banks, there are many barriers that they may encounter They are:

* Main factors affecting competitions:

- Satisfying banking standards according to international criteria when joining WTO

- High technology — an important tool that helps banks compete and improve their system more effectively in managing customers, processes and other possibilities

- Conditions of entering market (opening a new bank) have been allowed but with

many additional complex conditions (technological barrier)

- Central bank increases managerial functions and controls commercial banking system

- Conditions of enlarging branch network are stiffer

- Inflation is high, liquidity is low, and exchange rates change greatly

- The possibility of raising banks charter capital is lower and lower

- The level of competition from foreign banks is more and more severs, including an increase in the number of new foreign banks

* Financial size and ability:

Up to now, the size of total assets and charter capital of Vietnam’s banks, including state-owned commercial banks and commercial joint-stock banks, is still small compared to average capital of the world’s typical commercial bank Currently, about size, the working capital of the world’s average bank is at least one billion USD Therefore, in the process of integration and in order to have sufficient ability to compete, commercial banks must have a capital size at least equivalent to the world’s average bank, Le the bank’s owner's equity must be at least 16,000 billion VND Commercial banks’ capital size must always guarantee capital’s safety ratio of at least

S2ø of total assets, this is an unmissable international standard.