Developing business strategies of Vietnam Commercial Joint Stock Bank for Industry and Trade - Cua Lo Branch (VietinBank Cua Lo) in the period of 2011-2015

REA TAT SSE ASS ESE GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT REPORT DEVELOPING BUSINESS STRATEGIES OF VIETNAM COMMERCIAL JOINT STO

REA TAT SSE ASS ESE GRIGGS UNIVERSITY

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

DEVELOPING BUSINESS STRATEGIES

OF VIETNAM COMMERCIAL JOINT STOCK BANK

FOR INDUSTRY AND TRADE - CUA LO BRANCH (VIETINBANK CUA LO)

IN THE PERIOD OF 2011 - 2015

Group No.11 Student’s name:

1 Ho Xuan Bay 2h Nguyen Ngoc Thanh

Be Ha Xuan Quang

4 Nguyen Tuan Dung

Hanoi, 2011

GaiGcs) UNIVERSITY (CÍ

TABLE OF CONTENTS

là 402030 00:9) p4 6

1 General context, the necessity and the urgency of the research ccccccccccccecsseseees 6

2 Subject and purpose of the research .c.ccccccescsssssscsesseseetsvsseseseevecesestavsveveseseevens 7

3 Research methodology .c.ceccceccssessseesesescsesesssscscsvsvsssecsssvsusassvavsvaseatavavaveseseevees 7

4 Structure of the Capstome? .cccccccccccscscscscssscscsvsvsvsvsvessssscatscssacavavavacavavevevavevevees 7

POSTEO; as.msss icnsonsinenwe nonnen ngurrvesine grote Wis HEED HREENASOEERD Sash fuhaenneanenees gang uy g3 v6 II 1.2 Process oŸ developing, stFaf€gy St tt 1E HE 11111111 11x neo 11 1.2.1 Defining the mission and Objectives .c.cccccccssssssessscsscsesecesestsesscseseavees 12 1.2.2 Analyzing external environMent c.c.ccccccscsccecsssssssecsesvsessscscetscsesescans 12 1.2.3 Analyzing the enterprise’s internal environment .c.c.cccccscscscsseescecseeees 12 1.2.4 Developing the strategic alternatives .cccccccccssesssssesesesseeseessetesestestenes 13 1.2.5 Analyzing and selecting strategies .cccccscssscsssesesessssssescsesesesesvecececeees 14 1.3 Tools for strategic analysis ccccccccescssssssseeseesessssesescessesesescessvavavavavavevevevs 15 1.3.1 Using PEST Method to analyze macro factors .cccccccsssssscscscecececeveceseeees 15 1.3.2 Using Michael Porter’s Five Forces of Competition to analyze micro

1.3.3 Using EFE Matrix to analyze the Opportunities and Threats 15 1.3.4 Using IFE Matrix to analyze the strengths and weaknesses l6 1.3.5 Using SWOT Matrix to qualitatively analyzing the strategy 16

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1.3.6 Using QSPM to analyze and select J0 17

BUSINESS ENVIRONMENT SITUATIONS OF ccsscssssssssssssssssessccscssessesscscesee 19 VIETINBANK CUA LO uuu ccscesssssssessesssscsscsesusscacsussussusacsussecsussssssssssasensenseeseses 19 2.1 General introduction cecccccccccscccsessssessessesessesssessesseevessesseseessesteevereescescesce 19 2.1.1 Establishment and development history .cccccccccccsscssecsesscssesssecsceseesceeeee 19 2.1.2 Organizational Chart .c.c.cccccccscsssssssesssvssessssseseeseseaveseeveeveseesesceteececcecee, 20 2.1.3 Distribution network .0.cccccccccccscessssestesessessesesessessstesseseereescereeteetescesces 21

2.2 Analysis of factors affecting the operations of VietinBank Cua Lo 24

2.2.1.4, Natural environment .cccccccccsssssesesessescssessesseesssteseessersesserceseeeescescess 30

2.2.4 External Factor Evaluation (EFE) Matrix ccccccccccccccccsscssesceseeseccescecesccceee 42 2.3 Analysis of internal factors of VietinBank Cua Lo ceecceccecsccsccesccscescescescesceccess 43 2.3.1 Human resources .ecccceccescssssssssssvssesresssssavssessssssesssessesaversesserceteetescescess 43

2.3.4 Management capability cecsceccssesvssecsessecsesessesssesseteeteeseecesceseess 45

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1.3.6 Using QSPM to analyze and select strategies .c.ccccccccescecccscessesceseeseesessee 17

3030 75ẶẤ 19 BUSINESS ENVIRONMENT SITUA TIONS OE -2 se cecet set sEecsee 19 VIETINBANK CUA LO 2- 5° 5° 5656 StESESEEEESEEEEESEEEEEESEEeEESEESSetEeireee 19

2.1.1 Establishment and development history c ccccccccssccsesssessecsesssecsessecsceseee 19 2.1.2 Organizational Chart .c.ccccccccsssssssesssssestestesesstesessesetsessessesteeteeseesesceseees 20 2.1.3 Distribution network .c.ccccccccscsscssssssssestsstesesseseessesessessesusseeserterseseeseees 21 2.1.4 Service OffETINGS oc eecececcescssesscssessessesessscsesstssssessasestessesssstesveseerseeseseees 21 2.1.5 Business performance throughout the years cccccscccssssssssessesssecsessececeseee 23 2.2 Analysis of factors affecting the operations of VietinBank Cua Lo 24 2.2.1 Macro environment (PEST model) ccccccccsccsssscessssesssesecsessececeveceescescees 24 2.2.1.1 Economic environment .c.cccccscsssscssssesssssstesesvessesessesessesvessereeveceseees 24 2.2.1.2 Socio-cultural environMent cccccccscesssssscsseesesceseesssteseeseevescesescesecceses 28 2.2.1.3 Political and legal environment cccccccsssssssssescssesscesecseesecsesseseceseceees 28 2.2.1.4 Natural environment 0 ccccccccccsscsssesssssssessessessesessessessesessseeseseceveeseevees 30

2.2.4 External Factor Evaluation (EFE) Matrix Tnhh 42 2.3 Analysis of internal factors of VietinBank Cua Lo nen 43

LIST OF TABLES AND FIGURES

Cua Lo as a function of time

‘Table 2.2 | CPI of Nghe Anasafunctionoftime =~ Figure 2.3 | Summary of the macro factors influencing Vietinbank CuaLo _

Vietcombank, BIDV, Agribank in Nghe An

‘Table 2.7 | TheEFEMatixofVieinBankCualo -

_Table 2.9 _ | The SWOT Matrix of VietinBank Cua Lo

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INTRODUCTION

1 General context, the necessity and the urgency of the research

The current context of global economic crisis such as debt ceiling issues in the United States and many European countries have strong impact on the world’s financial market

Because of the fact that Vietnam gradually integrates into the world’s economy, all the fluctuations of global economy also have impacted significantly to the economy of Vietnam The banking system of Vietnam has faced many difficulties since early 2001 till now

Firstly, it is the force to reach the target of controlling the increasing inflation Banking system has to face liquidity difficulties, and it is difficult for every bank, even the biggest ones, which are considered to be the market makers

Secondly, if the interest rate was completely decided by the banks in the past, this role, now, is transferred to customers, especially customers who hold a huge amount of Vietnam Dong (VND) However, it is the state organizations that bargain for interest rate the most There is institution that organized bidding for capital cost for deposit, and the winner would be the bank that offers the hi gher payment

Thirdly, it is merging and acquisition in banking sector For many years, observing the low liquidity and weak financial situation of many banks, which resulted from unhealthily quick growth, under-standard lending and low safety ratio, many people have asked for, in these cases, to conduct merging and acquisition, resale or announce bankruptcy in order to make the market grow strongly again, however, it has never happened since

Fourthly, the foreign currency exchange market, after few years of chaotic rate

variability, it is now settled down through series of decisive action However, far

behind that success was the power of the administration, instead of tools with regulating senses

In this context, many banks have to develop or adjust their business strategies to suit the market conditions Vietnam Joint Stock Commercial Bank for Industry and

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However, in the volatile situation of the market and severe competition, Vietinbank

Cua Lo has to build their own business strategy to develop and compatible with the strategy of the Bank’s overall system

2 Subject and purpose of the research

- Subject of the research: Vietinbank - Cua Lo Branch

- Purpose of the research: Developing business Strategies for Vietin Bank Cua

Lo in the period of 2011 — 2015 and propose solutions to make it become the 1“ ranking branch in the Vietinbank system

3 Research methodology

- References: primary and secondary data, data of Vietinbank Vietnam, Vietinbank Cua Lo, Reports of the People’s Committee of Nghe An Province

- Analyzing technique: IFE, EFE, SWOT and QSPM matrices, Michael Porter’s five forces model of competition

4 Structure of the capstone:

Chapter 1: Rational foundation of business strategy

Chapter 2: Business Environment situations of Vietin Bank Cua Lo

Chapter 3: Business strategy selection and implementation solutions of VietinBank

~ Cua Lo for the period of 2011 - 2015

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CHAPTER I THEORETICAL FOUNDATION OF

BUSINESS STRATEGY

1.1 Business strategy

1.1.1 Definition of business strategy

1.1.1.1 Different definitions of business strategy

Alain Threlart stated that "Strategy is the art that an enterprise uses to stand against competition and win"

According to M Porter, "Strategy is the art of building solid competitive advantages to defense"

For these reasons, the authors considered business strategy as a kind of art to

compete in the market and develop the enterprise

According to the viewpoint of management, business strategy is a kind of plan:

- G Arlleret stated that "Strategy is the determination of the roads and the means to achieve the objectives defined by the policy"

- D Bizrell et al defined strategy “as a general plan or direction that leads the enterprise to the desired goal It is the basis for the elaboration of the policies and operational measures "

- Gluecl stated that: "The strategy is consistent, comprehensive and integrated plan designed to ensure that the enterprise’s objectives will be implemented

According to the perspective of consistency:

- "Strategy is the art of coordinating activities and controlling them to achieve long-term goals of the enterprise"

- Chandler defined that “strategy involves defining basic long-term goals of the enterprise and in the same time choosing the mode or courses of actions and allocate the necessary resources and implement those goals”

In an enterprise: "Strategy is the art of organizational design aimed to facilitate long-term goals of the business and it has the relationship with the change

of business environment and competitiveness”

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1.1.1.2 Basic characteristics of business strategy

- Business strategy determines the basic objectives and business direction of the enterprise in a specific period

- The orientation of the strategy is to ensure the continuity and firm of the development in the constantly fluctuating business environment

- Business strategy ensures to mobilize at het maximum and combines at the optimal of extraction and use of enterprise resources at the present and in the future

It also promotes the advantages and seizes the opportunity to competition

- Business strategy an enterprise is reflected throughout a continuous process

- Business strategy always peruses attacking thoughts in order to win in the marketplace

- Business strategies are often built in a long period of time (3, 5 to 10 years) 1.1.2 The role of business strategy for an enterprise:

- Business strategy helps the enterprise to identify the purpose and its basic

direction as the guideline for all manufacturing and business activities of the

enterprise Business strategy plays an orienting role in the long-term operation of the business; it is a solid basis for the deployment of the operation The lack of strategy or when strategy is unclear or when there is no solid argument will make the operation of the enterprise lost its way There are many problems that can only

be seen in the immediate future but could not be associated with long-term plan and cannot be seen as the main role in the whole activities of the enterprise

- Business strategy helps the enterprise understand and take advantage of

business opportunities, and in the same time take measures to overcome the risks

and threats in the competitive marketplace

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The foundation for success or failure depends on an important factor of how the enterprise’s business strategy looks like

1.1.2.1 Focusing development

This strategy is to improve the competitive position of enterprises in comparison with the existing products based on enhancing marketing activities or changing the existing market strategy without changing the product It comes in three main strategies:

- Market penetration: increase the market share for available products and services available in the market through marketing activities

- Market development: Provide products and services available in the new area

- Product development: Increasing in sales, innovating in available products and services

1.1.2.2 Three competitive strategies

1 Cost-leading strategy

Cost-leading strategy is driven by the overall action to provide products or services that have the characteristics accepted by customers with the lowest cost compare to all competitors

Z, Product differentiation

The objective of the differentiation strategy is to gain the competitive advantage for the enterprise through creating products (goods or services) that is unique in some features to the customers Enterprise that tries to make the

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1.1.2.3 Competitive strategies for enterprises based on market share and

position:

Although they are in the same industry, but each enterprise has a different market share position:

- The leader in the market

- The enterprises that challenge the market

- The enterprises that follow the market

- The enterprises that lurk in the market

1.2 Process of developing strategy

Figure 1.1 F.David Model of Strategic Management

Evaluating to find our long-term ' | Setting up '

Specify '

‘

exizting Review the ' R : ' Meazure and

and strategv ° i ‘

Internal Factors Selecting | ' Department

Evaluating co find out Strateøx ‘ Policy ‘

The process of developing is the first stage in strategic management There

are four steps in building up the strategy:

1.2.1 Defining the mission and objectives

Vision: Claims of enterprise on their position in business environment in a certain period of time — is guidelines for company’s action in all the times and circumstances

Mission: The mission of an organization is actually its business purpose, its

reason for the establishment, survival and development Business mission of an

organization answer the question: What is the reason for an organization to be established and exist?

Objective: The objective is the state, the specific results that the organization wants to achieve over a period of time Most organizations pursue profit and goals of excellence and leading position The second objective is the goal that the organization thinks it is necessary to achieve remarkable capacity

1.2.2 Analyzing external environment

They are the elements, these forces and the alternatives that locate outside that the enterprise that the administrators could not control, but they have strong effect

on the operation and performance of the enterprise

The environment of an enterprise includes:

+ Macro-environment (general environment) includes factors like the economy, politics, legislation, technology, culture and society, nature

+ Micro-environment (specific environment) includes factors like customers, suppliers, industry competitors, potential competitors, replacement products

The aim here is to identify and understand the related environmental conditions to clarify the environmental factors that are likely to influence the decisions of the enterprise

Evaluating the opportunities and challenges from the external environment that affect the enterprise will allow the enterprise to build a suitable business task and set out clear policies to achieve the goals

1.2.3 Analyzing the enterprise’s internal environment

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GriGcs) UNIVERSITY G2 Analyzing the internal environment of the enterprise in order to find out the

strengths and weaknesses, ways to achieve competitive advantage, and the role of different capacities, resources and capacity to build and maintain sustainable competitive advantage for the business

The internal environment is analyzed based on functional activities such as human resources, technical infrastructure, technology and finance

1.2.4 Developing the strategic alternatives

After analyzing the factors of the macroeconomic and business environment, the enterprise often has to identify opportunities and risks from external environment, the strengths and weaknesses from the internal environment of the enterprise used as the foundation for developing orientation and strategic plan The main technique that used is analyzing the strengths, weaknesses, opportunities and threats (SWOT Matrix)

SWOT analysis provides useful information for connecting the resources and capabilities of the enterprise within the competitive environment that it operates It

is also the tool to set up and selecting the strategy SWOT Matrix is a method of analyzing the strengths, weaknesses, opportunities and threats

Analyzing SWOT Matrix provides tools for strategic analyzing, review and evaluating the position and the orientation of an enterprise or a business plan SWOT is suitable for working and analyzing in groups, it is used in business planning, strategy development, competitor evaluation, marketing, product development and services

SWOT Analysis is the assessment of data held by a SWOT model in order

to understand, present, discuss, and apply Four-dimensional evaluation of the SWOT is an extension of two-dimensional "strengths" and "weakness" SWOT analysis can be used for any decision and the SWOT model allows positive thinking, beyond any framework of habit or instinct When analyzing SWOT, we need to identify clearly the purpose of the target, and then we can expect others to contribute to the analysis process The people who see the results of the analysis

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1.2.5 Analyzing and selecting strategies

When choosing a strategy, an enterprise should consider a number of factors that affect the strategic choices These factors include both objective and subjective factors, namely the strengths of the industry and enterprises, strategic objective of the enterprise, leaders’ attitude in the enterprise, financial sources, ability and capacity of the managers, the reflection of the subjects and the deadline

Some foundations for selecting strategies

- The power of the enterprise and the industry in comparison to other competitors that may influence the strategic choices

- Tasks and objectives: The system of goals that the board of directors has given that could directly affect the choice of strategy The point here is to choose the appropriate strategy for the target and duties of enterprises rather than only the profit or growth

- The viewpoint of the executive director has a direct effect the choice of the strategy, especially the attitude of the executives towards risk

- Financial capacity of the enterprise also has the influence and some of them even put pressure on the strategy selection The bigger and convertible the capital

an enterprise has, the easier for it to pursue opportunities, but some have to give up due to insufficient financial capacity

- Capabilities and qualifications of business administration staff of the enterprise also govern the sclection of strategy This factor plays a more or less a role in the implementation of the strategies and to the success of a strategy

- The time factor: The success of a strategy may depend heavily on identifying the right time for implementation

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- Results of the current strategic review of your business: Identifying the

exact current strategy of the enterprise as a basis for choosing the new strategy and confirm the current strategy

1.3 Tools for strategic analysis

1.3.1 Using PEST Method to analyze macro factors

PEST studies the impacts of the factors in the macro environment Those factors are:

Porter’s Five Forces Model was first printed in the Harvard Business Review

in 1979 with the content is to understand the factors that create profits in business It

is called Porter’s Five Forces Model and considered as a useful and effective tool to learn about the source of profits More importantly, this model offers competitive strategies for the enterprise to maintain and increase business profitability

1.3.3 Using EFE Matrix to analyze the Opportunities and Threats

The specialists have come up with the EFE Matrix to evaluate the external

factors

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Table 1.1: EFE Matrix

1, the higher the

weight, the more important the

1 = low reaction

2 = average reaction

3 = above average reaction

1.3.4 Using IFE Matrix to analyze the strengths and weaknesses

Specialists have come up with the IFE Matrix to evaluate the internal factors:

Table 1.2: IFE Matrix

the factor 4 = strongest point

Listing all the Grading from 0 to 1, 1 = weakest point (4) = (2)x(3)

internal factors | the higher the weight, | 2 = weak

of the enterprise | the more important 3 = strong

1.3.5 Using SWOT Matrix to qualitatively analyzing the strategy

Analyzing the Strengths - Weaknesses — Opportunities — Threats

SWOT stands for Strengths (S), Weaknesses (W), Opportunities (O) and Threats (T) This is a very useful matrix that helps us to study an issue or make decision in managing or organizing in business

Table 1.3: SWOT Matrix

List all the important

weaknesses from the Table of internal factors of the

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Global Advanced

MINDS IN THE MAKING

Opportunities (O)

List all the important

opportunities from the

Table of external factors

Combination S-O Make advantage of the enterprise’s strengths to develop the opportunities in

Combination W-O Make use of external opportunities to overcome the

internal weaknesses of the

List all the important

threats from the Table of

external factors of the

strengths to reduce the impact of external threats

Combination of ‘protecting strategies, which i is overcoming weaknesses and reduce or

avoid external threats

the external opportunities

W-O Strategy: overcome the weaknesses to make advantage of external opportunities

S-T Strategy: using the strengths of the enterprise to deal with the external threats

W-T Strategy: overcome the weaknesses to reduce the external threats

1.3.6 Using QSPM to analyze and select strategies

Quantitative Strategic Planning Matrix - QSPM uses the in-put data from the above analysis (mentioned in the previous chapters) to help strategists subjectively determine which strategy in a alternative set of strategies is the most appropriate for the company to pursue in order to successfully accomplish its objectives

Table 1.4 Quantitative Strategic Planning Matrix

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In principle, a QSPM can include any group of strategies in an alternative set

of strategies which include any strategy; but only strategies in the same group can

be evaluated and compared These groups of strategies are different and a QSPM can only evaluate strategies in the same group

It should be noted that QSPM shows the comparative attractiveness of the alternative strategies; and more importantly it provides subjective bases to consider and determine the most appropriate product strategy However, QSPM also has some limitations and it must have certain conditions to be used in practice One of the biggest drawbacks is that in the process of developing the matrix, intuitive judgement is required to give the factors the attractiveness score - although based on

the environmental analysis information conducted before Therefore, in order to

effectively use QSPM, strategists are required to discuss thoroughly and reach a consensus on each number in the matrix by adding scoring bases in the

attractiveness score column

Strategy selection is the final determinant step of the strategy development and also the first step in the strategy implementation process Developing and selecting strategies can identify steps required to have a feasible business strategy However, to be successful in the marketplace, selecting the appropriate strategy is essential and crucial And with the selected strategy, the company must implement

it effectively This is a critical stage to translate the company’s strategic expectations into reality

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CHAPTER II BUSINESS ENVIRONMENT SITUATIONS OF

VIETINBANK CUA LO

In this chapter, the report concentrates on presenting the current business environment situations of Vietinbank Cua Lo This part also analyzes the external and internal environment of Vietinbank Cua Lo directly affecting the business performance and evaluates the actual opportunities, challenges as well as strengths and weaknesses of Vietinbank Cua Lo in order to formulate the appropriate business strategies for the period 2011 -2015

2.1 General introduction

2.1.1 Establishment and development history

The Cua Lo branch of Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank Cua Lo) was previously a second-level branch of Nghe An bank

of Industry and Trade On August IŸ 2006, VietinBank Cua Lo was upgraded into one of the first-level branches of Vietnam Bank of Industry and Trade (VietinBank), according to the decree No 197/QD-HDQT-NHCT1 on July 4" 2006

The responsibilities of VietinBank Cua Lo include: trading of currencies, credit, banking services and other activities such as trading of foreign currencies and gold; financial consultancy; commission and receiving commission; being a agency in commercial bank related fields; providing insurance services in accordance with legal requirements; providing services of preserving valuable possessions, valuable documents; leasing lockers; mortgage and other services in accordance to with the legal regulations of Vietnam

In the period of establishment, net balance of VietinBank Cua Lo was 35,000 million Vietnam dong and the capital raised was 26,000 million Vietnam dong; the total number of staffs was 35, the head office was located at No.190 Binh Minh

Street, Cua Lo town, Nghe An, with 5 departments and sections at the head office (including Administration, Accounting, Customer Service, Currency Treasury, Risk

Management)

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Hee Seance ratio Career Units re bề

Vision

To become a leading, modern and effective financial - banking group in Vietnam and in the world

Core values

- All activities are customer-oriented;

- Dynamic, creative, professional, dedicated, transparent and modern;

- The employees are encouraged to strive, work hard and contribute - They have the right to be rewarded according to the quality, results and effectiveness of individual contributions - Outstanding and hard-working individuals are appropriately honoured

Business philosophy

- Security, efficiency, sustainability and international standards;

- Solidarity, cooperation, sharing and social responsibility;

- The prosperity of customers is the success of VietinBank

Slogan: Improving the value of life

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(Source: VietinBank.vn)

VietinBank - Cua Lo is a 1“'- level branch

Figure 2.2: Organizational Chart of VietinBank Cua Lo

|

Deputy Director

Binh Minh Street, Cua Lo town, the branch has expanded the distribution network

to the entire Vinh City and Nghi Loc District, with 05 transaction offices: Hong Son

transaction office at no.32-34 Ngo Duc Ke Street, Vinh City; Tran Phu transaction

office at no.24 Tran Phu Street, Vinh City; Phong Dinh Cang transaction office at no.274 Phong Dinh Cang Street, Vinh City; Hung Phuc transaction office at no.159 Nguyen Phong Sac, Vinh City and Mai Trang transaction office at Nghi Xuan village, Nghi Loc District, Nghe An; 02 ATM machines placed at the head office 2.1.4 Service offerings

The current service offerings of VietinBank Cua Lo are quite diversified and providing all services of VietinBank Vietnam

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Loan and investing service

These types of services include: short term lending in Vietnam dong and foreign currency; Medium term and long term lending in Vietnam dong and foreign currency; sponsoring exporting and importing; discounting exporting documents; co-sponsoring and capitalizing in big, long time payback period projects; sponsoring lending, commission for projects such as: Dai Loan (SMEDF), Viet Duc (DEG, KFW) and structure credit agreements; overdrawing, consumption lending Guarantying service

The bank offers guarantying, re-guarantying (domestically and overseas); contract biding guarantying; contract fulfillment guarantying; payment guarantying Payment and commercial sponsoring

Payment and commercial sponsoring include: issuing and processing import letters of credit; informing, confirming and paying letters of credit for import; import and export collection; draft payment and draft agreement collection; transferring currencies domestically and overseas, express transferring Western Union; process order of collection, order of payment, cheques, salary payments via bank account and ATM; process currency exchange from overseas

Funding

Funding service include: trading foreign currency (Spot, Forward, Swap ); trading securities (government bonds, treasury bonds, bills ); collecting and paying cash and foreign currency locker leasing; storing and safeguarding gold, jewelry, valuable documents, patents

Bank cards and digital banking services

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These services include: issuing bank card and processing domestic credit cards, foreign credit cards (VISA, MASTER CARD ); ATM card services, cash cards:

internet banking, phone banking, SMS banking

In 2010 VietinBank was proudly selected into the Top 5 brands of trust worthy banks and Golden quality by consumers

In April 2011 VietinBank was honored by Western Union as the most rapidly and effectively network expanding bank in Asia Pacific, and VietinBank Cua Lo was rewarded as the transaction office leading in development

Source: www VietinBank.vn

2.1.5 Business performance throughout the years

Unit: Billion Vietnam Dong

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2.2 Analysis of factors affecting the operations of VietinBank Cua Lo

In 2010 and early 2011, world affairs like the public debts of the U.S and

European countries, global security, climate change, fluctuation in gold and oil prices, and the depreciation of the dollar have significantly influenced Vietnam’s macro environment

2.2.1.1 Economic environment

Global economic situation

Early in 2011, revival of the global economic situation has been slow due to problems in major economies such as deflation in Japan, growth rate deceleration in China, public debts in Europe, especially political turmoil in 11 North African and Middle East countries, and natural disasters in Japan (accounting for an estimated 5% global economic growth) Under these circumstances, the global economy has

to cope with a series of other challenges:

Inflation has been a growing concern in every nation since the price index of raw materials has risen by 8% in only several months as a result of monetary loosening programs in major economies and political instability in North Africa and

Middle East Inflation has been at the highest level in many Asian countries in

recent years such as China with 5%, India with 8.2%, Korea with 4.7%

Rising prices of strategic commodities have globally threatened energy security and food security Crude oil price has risen to the highest level in 2.5 years

(US $113/gallon on April 8, 2011, which is a 30% increase as of last year); the

same situation has happened to gold price (US $1.473/ounce on April 8, 2011); and similar patterns can be seen in silver price Notably, food price has been up roaring

by 30% as of mid-2010 with cereal price soaring by more than 40%, and is likely to lead to a global food crisis

International financial and monetary markets have had wild fluctuations: the world’s stock market has suffered from political upheavals and natural disasters One week after natural disasters struck Japan has cost international stock market a damage of US $1,600 and a major continuing capital withdrawal in Arab countries

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order to focus its financial strength on rebuilding the nation; whereas China has had

no intention of buying more bonds from the American government In monetary market, the dollar has kept depreciating relative to major world currencies Conversely, in the first quarter of 2011, the Euro has experienced the highest level

of increase in value in history by 3.5% Real estate market in the two biggest economies in the world, the U.S and China, still has no positive signals and is pressing negative pressure to banking systems

It is forecast that policies aimed at tightening the belt and monetary tightening will slow down the growth rate of the world economy in short term Inflation can be controlled just in case there are no major difficulties met in oil price and food price In some countries, economic disturbance may transform into sociopolitical unrest

For Vietnam: Over a 3-year period, despite major turmoil and regression in

the global economy, Vietnam’s economy have still enjoyed high growth rate in the

region However, emerging problems like inflation, trade deficit, and fluctuation in exchange rate have remarkably posed challenges to it

Table 2.1: GDP growth rate of Vietnam and regions including Nghe An and

Cua Lo as a function of time

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infrastructure development and industry development; exploited the industry of fish

processing, travel services and agricultural produce in order to take advantage of its resources and geographic position Its GDP growth rate is always higher than the average GDP growth rate in Vietnam

For Cua Lo Town District: This is where the headquarters of Vietinbank Cua Lo is located In recent years, the district has urged socioeconomic developments, especially in travel services, fishing, fish farming and fish processing The GDP growth rates of Cua Lo in the past few years have remained high and stable

Impacts of gold market on banking operations

In 2010 and early 2011, the macro economy is deeply influenced by fluctuations in the gold market High gold price has directly affected the ability of capital mobilization in the finance area: when gold price rises, people withdraw their money from banks to invest in gold instead of pouring money into savings account Simultaneously, the withdrawn capital only lingers around the gold market and foreign currencies trading Consequently, the ability of commercial banks to

mobilize capital is hindered, thus obstructing operations of the banking system in

particular and the economy in general

Impacts of foreign currencies market on banking operations

Dollarization in Vietnam is not only illustrated in the ratio of savings in foreign currencies/total savings in the banking system, but also in the amount of foreign currencies circulating outside the financial system When gold price rises, needs for USD entails on free markets, leading to illicit imports of gold and uncontrollable rising USD exchange rate

Impacts of inflation on banking operations

For capital mobilization: due to high inflation, capital mobilization in many banks is difficult To do that, or to avoid the flow of one bank’s capital into other

banks, the bank should raise its mobilization interest rate close to current

developments in the capital market However, it is hard to decide how much to raise

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GriGcs) UNIVERSITY G sonal aan

the rate as appropriate to every bank An unexpected mobilization rate race in most

banks (17-18% per year for weekly or monthly term deposit) usually creates a new mobilization interest level Then, the banks will continue to compete and push the rate higher In some cases, several banks set mobilization interest rate too close to credit interest rate regardless of consequent big loss in their banking business, posing threats to the whole commercial banking system

High inflation forces the State Bank of Vietnam to tighten monetary policies

So as to reduce the amount of money in circulation However, the needs of businesses and individuals for borrowing capital is high while banks can only satisfy few of them who have already signed contracts or really effective plans with acceptable risk level On the other hand, high mobilization interest rate also means high lending interest rate, which is a significant setback in banking investment environment and likely to cause moral hazard As the VN dong purchase power decreases while gold price and foreign currencies increase, it is virtually impossible for banks to mobilize capitals with term deposit of 6 months or more while the needs for borrowing mid-term and long-term capital is remarkably high Therefore,

it is very likely that banks will use short-term capital to lend in mid-term and long- term periods That badly affects their liquidity and inevitably results in term risk and exchange rate risk

High inflation also put enterprises and people in a condition where they trade goods and pay directly in cash but there is a short of cash in the market According

to an investigation of the World Bank, Vietnam has 35% cash circulating and 50% trade taking place outside the bank, and 90% of the population making payment not through the banking system Large cash circulating outside the bank makes it hard

for the State Bank of Vietnam to monitor its flow Moreover, it is also troublesome

for commercial banks to develop their noncredit services, especially bank payment services Cash shortage contributes to the fact that many businesses buy and sell on credit; increasing debt payments and outstripping operations

2.2.1.2 Socio-cultural environment

According to a report from Nghe An Province People’s Committee in 2006-

2010, socio-cultural issues have been taken well care of a lot of positive changes have taken place, and people’s material and spiritual life have been gradually improved As they are wealthier, people will have savings to turn into banks and thus paving way for capital mobilization services of banks This is also a channel of capital mobilization of local banks

Nghe An Province encourages and attracts investors to build universities and other high quality academic institutions in order for Vinh and Cua Lo District to be the center of education and vocational training of the North Central Coast This would be a favorable condition for banks to develop their networks and reach customers like pupils and students

In fact, Nghe An has a considerable number of immigrants residing,

working and studying in Hanoi, ho Chi Minh City, Da Nang Province, Dong Nai

Province, etc Those people are in need of transferring money through post offices and banks Therefore, this is an advantage commercial banks should take to expand their service network to villages and districts in Nghe An

More importantly, according to the Overseas Labor Management Department, by December 31, 2009, Nghe An had the most overseas workers with a figure of 8,825 Those workers along with Nghe An — rooted residents living and working overseas have contributed a considerable amount of overseas remittance Quite a few banks have opened their branches and transaction offices to provide remittance services

2.2.1.3 Political and legal environment

In recent years, Vietnam’s political and legal environment has been highly

praised under the circumstance that the world has had various turmoil Many new

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National monetary policies have focused on dealing with purchase power of the whole national economy, including providing money in circulation, controlling monetary and credit system that supply capital for businesses, necessitating development in monetary market and capital market in defined direction, monitoring commercial banks’ and other credit organizations’ Operations, setting an appropriate exchange rate in order to stabilize and push foreign economy forward, heading for the ultimate goal of monetary stability, stable currency purchase power, and secured commodity prices For example:

- To actively monitor credit in accordance with directions from the government, and to help stabilize monetary market, the State Bank of Vietnam has raised recapitalization rate and overnight lending rate of electronic interbank payment from 13% per year to 14% per year, and discounting rate from 12% per year to 13% per year from May 1, 2011

- Flexibly regulate open-market operation with appropriate amount and rate (raise 7-day term deposit from 13% per year to 14-15% per year) in order to control and stabilize the monetary market (Source: The State Bank of Vietnam — Banking Report in May 2011)

PCI (Provincial Competitiveness index) measures and rates the local authorities in Vietnam in terms of creating favorable business environment for private enterprises development

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(Source: Vietnam’s Chamber of Commerce and Industry)

Nghe An has low PCI and ranking due to unfavorable local policies for private enterprises

2.2.1.4 Natural environment

Nghe An is the geographically largest province in Vietnam by total area, with various type of terrain ranging from forests to mountainous land, plain land and a long coastal line Its natural conditions give the province an advantage for development of forestation, industrial crops, livestock and dairy processing, mining and seafood industry In particular, Cua Lo is a famous tourist destination which attracts millions of tourists annually This involves tourist services, entertainment and eventually raises the need for banking services

On the other hand, the western mountainous area has inclement natural

conditions with relatively frequent flood, thus people there currently experience many difficulties This prevents them from accessing and using and to banking services

2.2.1.5 Technological environment

Vietnam's information technology and telecommunication sector has been seeing high growth rate, with advanced technologies updated It has boosted the development of many economic sectors, among them banking sector The banking sector is actually one of the pioneers in early applying information technology into banking system operations and management

As of 2008, the establishment of bank-switch payment system has enabled interoperation of all the State Bank branches in 63 provinces and cities nationwide with a design capacity of two million transactions per day The system currently is participated by 472 branches of credit institutions and banks around the country In

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(Source: State Bank of Vietnam)

In recent years, Nghe An has been focusing on expansion of network and telecommunication infrastructures, providing internet access to all districts and provincial divisions These are favorable conditions for branches to expand the network and integrate into the banking system

ECONOMIC FACTORS

Figure 2.3 Summary of the macro factors influencing Vietinbank Cua Lo

2.2.2 Micro environment (industrial) — M Porter’s Five Forces

Overview of Vietnam’s banking market

The year 2010 witnessed the expansion in scale and scope of foreign banks

in Vietnam After a short time, these banks have been operating efficiently and there are other signs showing that foreign banks have begun to "invade" the market share

of domestic ones Entering in 2011, all barriers to foreign banks have been lifted as

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Foreign banks and financial institutions’ operations in Vietnam's market are greatly expanding, particularly since Vietnam joined the WTO As of now, there are five joint- venture banks, five banks with 100% foreign-owned, 48 foreign bank branches, 8 financial leasing companies, 56 foreign representative offices operating

in Vietnam These institutions are banks and large financial institutions, prestigious and highly secure, and have great competition abilities Although the market share

of foreign credit institutions are still modest (at about 10%), they are taking an important position in the system of financial institutions in Vietnam The foreign credit institutions are the transmission channels into Vietnam of modern banking technologies and advanced banking management experiences, and provide significant additional financial resources for Vietnam's financial market

While domestic commercial banks fiercely compete to develop credit and

take part in the race of interest rate, foreign banks focus on deepening corporate

financial services, venture capital and forex trading, global banking, international payments, supply chain, and securities depository Recent report by the State Bank showed deficit in 2010 of foreign credit institutions reaching nearly VND3,500 billion Bad debts ratio of 100% foreign-owned banks is only 0.4% of total outstanding loans

In particular, the progress of integrating Vietnam’s banking system into WTO has officially reached to the point where no discriminations between domestic and foreign banks shall be allowed (no discrimination between domestic and foreign goods and services) In detail, from January Ist 2011, foreign bank branches will be indiscriminately treated as commitments of Vietnam when joining the WTO Thus, foreign bank branches may enjoy the application of credit limits and guarantees exactly as domestic commercial banks do

It can be seen that when the lift of barriers for foreign banks has opened up a

better competition environments for banking market Foreign banks can freely operate in the market whilst domestic banks must continually improve products and enhance its services in order to compete This can be seen as "a push" for Vietnam’s commercial banks to reach a new level Those which are ill-prepared and have weak competitive ability will be eliminated and eventually merged or acquired by others Those with good management, high competitiveness will survive and thrive

(Source: Vietnam Bankers Association— The Banker Magazine)

Micro-environment is the industrial environment in which a business is operating The tool for analyzing this micro-environment is Michael Porter’s Five Forces Model These forces include: existing competitors, customers, suppliers, potential competitors, and substitutes

2.2.2.1 Competitors

In Nghe An province, there are currently 32 branches of State-owned

commercial banks, 16 joint-stock commercial banks, 45 units of the People's Credit

Fund; 2 branches of Vietnam’s Bank for Social Policies, with 114 transactional

offices , 15 savings funds making financial and monetary activities in the area to

be exciting

Currently, the pressure from competitors for Vietinbank is very high This not only comes from the same-size banks such as Vietcombank, BIDV, Agribank, but also from other rising joint-stock commercial banks Especially, new-coming foreign banks will be the direct competitor in the field of personal credit, payment, money transfer Non-bank credit institutions could also be strong competitors attracting flow of deposits and some other services

Beside, Vietinbank’s services are not unique This is also the common

characteristic of the banking sector in Vietnam As most banks offer the same products or services, the level of competition for Vietinbank particular and the whole banking sector is very high

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Table 2.4 Comparison of Vietinbank branches in Nghe An

(Source State Bank of Vietnam, Nghe An branch)

Table 2.5 Comparison of Vietinbank Cua Lo with branches of

Vietcombank, BIDV, Agribank in Nghe An

Updated on December 31° 2010 Unit: billion VND