Business strategy construction for Vietnam Joint Stock Commercial Bank for industry and trade in the period of 2012-2015

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT REPORT BUSINESS STRATEGY CONSTRUCTION FOR VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION

PROGRAM

CAPSTONE PROJECT REPORT

BUSINESS STRATEGY CONSTRUCTION

FOR VIETNAM JOINT STOCK COMMERCIAL BANK

FOR INDUSTRY AND TRADE

Vietinbak

Date, Xb /03./ 2

CONFIRMATION Vietinbank confirm:

Ms Pham Minh Hai, the Deputy Director of My Hao Branch of Vietinbank along with the members of group No 8 — GaMBAO1.X0610- Global Advanced Master of Business Administration — Griggs University already fact-finding and gain digital data source of Vietinbank over here in order to terminate report

“Business strategy construction for Vietnam joint stock commercial bank for industry and trade in the period 2012-2015”

Respectfully

Vietinbank

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CHAPTER II: ANALYSIS OF OPERATION ENVIRONMENT AND

CURRENT BUSINESS SITUATION OF VIETNAM JOINT STOCK

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CHAPTER III: DEVELOPMENT STRATEGY PLANNING FOR

VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY

AND TRADE IN THE PERIOD OF 2012 - 2015 -o-cĂccccceeeriei 61 VI./ Goal, orientation, mission, vision of VIETINBANK: 61

1./ Goal, orientation of the Government for the banking industry in general: 61 2./ Target development of credit institutions (CIs) and strategic orientation

GF 2018 eee 62 3./ Mission, vision and operational obJectives of VIETINBANK: 62 VII./ Construction of the matrix and selection of business strategies: 62 1/ F@fiii 5W C1: TT xesseeseesendktcbsobipii6id6003i04i602005083460865403305000336088630086 62

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country

Domestically, our society-economy continues to face difficulties and challenges, even larger than last year forecast of inflation, macroeconomic stability and social security GDP growth tends to slow down, lower than the

same period in 2010; prices, inflation, interest rates increase higher than the

inflation index and the margin of the business and the situation of dollarization and use of gold for business, making payment tools become more popular and serious; exchange rate changes strongly, gold prices rise; foreign exchange reserves decrease

The simultaneous implementation of three objectives (inflation control, stabilization of macro-economy, ensuring of social security) and economic growth target in 2011 meets much difficulties, challenges; results depend on very many factors of the determination and consensus of the entire society, on the capacity, effectiveness and efficiency of the operation, the successfully implementing organization of the Party's guidelines and Resolution 11/NQ-CP, 24-02-2011 of the Government The impacts of measures to control inflation, stabilize macro-economy, in addition to the positive side, there may be side effects reducing the growth rate, affecting the real estate market, property market, monetary, liquidity and safety of some commercial banks

4

2./ Necessity and significance of the research:

In the context of the business environment is fully volatile, difficult and potential of very high risk, the Vietnamese banks generally are necessary to acknowledge to review comprehensively aspects of their activities, in comparison with the objectives and strategies set out, analyzing to find the cause to explain the success or failure on each aspect of the bank itself On such basis, banks will have to build a business strategy for their own to be able to grasp opportunities, overcome challenges, promote strengths, control weaknesses and prevent risks in the process of the business operation to aim at growth and development target to add value to shareholders, meet customer needs better and better Vietinbank is a bank that has just shifted from to the state-owned bank to the model of joint stock commercial bank with many new challenges in the integration environment

3 / The purpose of the subject is to develop and select business strategies for Vietnam Joint Stock Commercial Bank for Trade and Industry in the period of 2012-2015 Through the analysis of business environment to clarify the internal strengths, weaknesses, opportunities and threats from the external enterprise From then to make recommendations and proposals for building the business strategy of the bank

As the staff working at Vietinbank, we wish to apply the knowledge gained during the participation of master training program of business administration

of Griggs University on the fact of our work environment, therefore, Group 8 has unanimously selected the topic of "Business strategy construction for Vietnam Joint Stock Commercial Bank for Trade and Industry in the period of

4.2 Scope of study

Limited to Vietnam's banking sector characteristics & activities VietinBank situation in recent years and some competitors

5 / Methodology

- The thesis mainly uses general analysis, statistical comparison methods

- Method of data collection: Based on the actual documents of VietinBank, referring to the data from the documents of State Bank of Vietnam, some commercial banks and other related documents

6 / Structure of the thesis:

Including the following parts:

- Introduction part

- Chapter 1: Basic principles

- Chapter 2: Current situation and operating environment of Vietinbank

- Chapter 3: Business strategy planning for Vietinbank and trade in the period

of 2012-2015

- Conclusion part

CHAPTER I: BASIC PRINCIPLE Il./ OVERVIEW OF STRATEGY AND STRATEGY MANAGEMENT

1 Strategy:

There are many definitions for the strategy:

-According to Chandler, the strategy is "the identification of long-term fundamental goals, purposes of the enterprise and the application of a sequence

of actions as well as the distribution of necessary resources to implement this

goal" (Chandler, Alfred D., Jr in 1962, Strategy and Structure Cambridge,

MA: MIT Press)

-According to James B Quinn, the strategy is defined in a more general nature: Strategy is a model or plan to integrate the major goals, policies, and action sequences into a cohesive whole ina tight way "(Quinn, J., B (1980) Strategies for Change: Logical Instrumentalism Homewood, Illinois, Irwin)

-The strategy word is understood by many means Minzberg has summarized the meanings of the strategy word which have been used by scholars and giving five main meanings of the strategy word, those are "SP" of the Strategy: Plan, Ploy, Pattern, Position, Perspective

-From the points of view above, we can see: strategy is linked to the business’s objectives The establishment of strategy helps the business achieve the target set Strategy is not a separate action but is a series of actions, decisions with intimate relationships with each other All strategies should be aimed at target

of the enterprise, it is established on the basis of internal resources of the enterprise, the external factors that affect the business

-In summary, we can offer a broad definition about strategy as follows: The Strategy is a series of complicated actions to mobilize resources of an organization which may have to achieve a specific purpose

2 Strategic management

2.1 Concept of strategic management

~-Strategic Management can be defined as an art and science which establishes, implements and evaluates decisions involving in many allowable functions of

an organization to achieve the objectives set out (Fredr David, Concepts

Strategic Management-Statistical publishing House, 2006)

-Strategic management focuses on integrating the management, marketing financial accounting, manufacturing, research and development and information systems and business areas to achieve the success of the organization

2.2 Role of strategic management for the enterprise

- In the condition of market volatility today, more than ever there is just one thing that businesses can know for sure that is the change Strategic management likes a direction, a direction to help these organizations overcome the waves in the marketplace, reaching the future by their efforts and ability Business strategy is designed to help the business focus to best adapt for long- term changes

- Strategic management helps an organization able to more active instead

of being passive in defining their future, it allows an organization to be able to

be proactive and influence in the environment it works and so, using all its

capabilities to control and beyond natural variables

- Strategic management creates for each one to be important awareness Both management and employees understand and are committed to implement the business objectives Once people in the business understand that such business is doing and why it’s so they feel like they are a part of the business, they will commit to support all activities of the business

3 Basic issues of business strategy:

- Business strategy must clearly define the basic objectives which need to

be achieved in each period and must reflect in all aspects and all levels of production and business activities of the enterprise

- Business strategy must ensure maximum mobilization and optimal combination of exploitation and use of resources (human along with other tangible and intangible assets) At present, and in future must promote the advantages to seize the opportunities to gain advantages in the competition

- Business strategy of the business is reflected in a continuous process from strategic construction to strategic implementation, evaluation, adjustment and check

- Business strategy is implemented and built for a relatively long time (usually for 3 years, 5 years, 10 years .)

Those features can be said that in the market mechanism, the development, implementation of business strategy is especially important for the survival and development of the business because:

- It helps the business identify its purpose, direction as a basis for determining whether an enterprise must do business in what orientation and when they reach certain goals

- The fluctuations of the market always create chances and risks, building implementation strategies to help companies capture, take advantage of

opportunities to overcome the risk, the market's pitfalls

- Development and implementation of strategies create a solid basis for business to make right decisions in accordance with the market place

- Development and implementation of strategies help decide to improve the efficiency of using resources, strengthen competitive position to ensure the sustainable development of enterprises

4 Strategy formulation process:

In fact, a process of comprehensive management strategy has three main components, which are shown in the picture below:

Figure 1.1: Model of Strategic Management:

Analyze strategy

Select Strategy Implement

< > Strategy

Source: Documents of strategic management

4.1 Identification of business mission

The report of the business mission is statement of "reason for existence"

of an organization It answers the central question "What is our business?" The business mission statement is clearly essential to establish the objectives and prepare an effective strategies "(Drucker, 1970)

4.2 Evaluation of external factors

The environmental factors have a tremendous impact because they affect all subsequent steps of the strategic management process The environment of business includes the macro environment and micro environment (industry environment)

4.2.1 Study of the macro environment:

Source: Documents of strategic management lecture

* Political — legal factors

This is factor which influences to all business industries on a territory, political

factors could endanger the viability and growth of any industry Political - legal environment affects greatly to improvement of the business performance of the enterprise by affecting the operation of the business through the legal instruments, macroeconomic regulatory instruments When trading on an administrative unit, the businesses will be required to comply with the political

factors in that area

10

* Economic factors

- Enterprises should pay attention to economic factors both in the short term, long term and the government’s intervention to the economy

- Usually, the businesses will be based on economic factors to decide to invest

in sectors and regions

+ The state of the economy: Any economy is always cyclical, in a certain stage

of economic cycle, the business will have the appropriate decisions for itself + Factors affecting the economy: interest rates, inflation,

+ Economic policies of the government: Law on the basic wage, the economic development strategies of the government, the incentive policies for the industries: Tax reduction and subsidiary

+ Economic outlook in the future: growth rate, increase in GDP, GDP ratio on

investment

* Socio-cultural factors

- Each country or territory has its cultural values and typical social factors, and these factors are characteristics of consumers in such area

- The cultural values are values creating a society, can foster that society to

develop and exist Therefore, the common cultural factors are often protected

very closely in size and especially the spiritual cultures But, we can not deny the cultural intersection of other cultures in the countries This interference will change consumer psychology, lifestyle, and create prospects for the industries

- In addition to the culture and social characteristics also make businesses concern as studying the market, the social factors will divide the community into customer groups, each group has the different characteristics, psychology, income :

+ Average life, expectancy, health, nutrition, food

+ Average income, income distribution

+ Lifestyle, education, views on aesthetic, psychological life

- Investment of the government and enterprises on R & D work:

- Speed the technology cycle, the percentage of obsolete technology:

- The impact of information technology, internet business activities

In addition to the basic elements on, when the market research, the factors enterprises must become a global macro factors affecting the industry

- It is important that as integrating, trade barriers will gradually be removed, businesses have the opportunity to trade with partners in distant geographic areas, customer of the business at this time is not only the domestic market where the business is doing business but also the customers come from all over

* Demographic factor:

The distribution of population and living standards between urban and rural areas is also affecting factors

4.2.2 Study of industry environment:

Analytical model of most most influence to evaluate the nature of competition

in an industry is Five Forces Model of Michael Porter, which is described

below:

Figure 1.3 Model of five competitive forces

(2) Threat of substitute products:

(3) Bargaining power of suppliers:

(4) Bargaining power of buyers

(5) Intensity of competition:

Analysis of environmental factors shows that the opportunities and threats that businesses will have to encounter from which to build strategies to take advantage of the opportunities and avoid or lessen the effects of threats After analyzing each separate element of the environment, the task of strategic managers is to provide a general conclusion about the essential factors which

bring opportunities and uncertainties of the environment

*Competitive profile matrix (CPM):

Of all the factors that may affect the business, the impact of competition

is often considered the most important Competitive profile matrix is an

extension of external factor evaluation matrix in the case of importance,

classification and general critical points have the same meaning The total score which is evaluated by the competitors is compared with the sample companies The factors will be listed in this matrix including: market share, competitiveness, financial position, product quality, customer loyalty The classifications show the way in which the business strategies respond to each

13

factor of competitor: importance with 3 is best and 3 is above average, 2 is

average and | 1s poor

Table 1.1: Matrix CPM

Bank competition Bank Bank competition

Vietinbank External 1 competition 2 3

actors Important mportant Important Important

Rating ™ Rating Rating Rating

*External factor evaluation matrix of (EFE)

EFE Matrix evaluates external factors, synthesizes and summarizes the

primary opportunities and threats of the external environment affecting the

operation of the business Thereby helping the corporate managers evaluate the

business’s response level for the opportunities, threats and making judgments

about the external factors as favorable or difficult for the company To build

this matrix needs to perform 05 following steps:

Step 1: Make a list from 10 to 20 factors of opportunities and threats

which you suppose that they are able to influence mainly to the success of the

enterprise in business industry / field

Step 2: Sort the importance on a scale from 0.0 (not important) to 1.0

(very important) for each factor The importance of each factor depends on the

influence of such factors to the field / industry that your business is producing /

trading The total score of the importance of all the factors must be equal to 1.0

Step 3: Determine the weight from 1 to 4 for each factor, the weight of

each factor depends on the degree of reaction of each company for the factors,

of which 4 is best response, 3 is reaction over average, 2 is average response, |

is weak response

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Step 4: Multiply the importance of each factor with its weight to determine

the score of factors

Step 5: Sum score of the all factors to determine the total points of the

Score

The level | The level | The level | The level

4.3 Evaluation of the internal firm

As the process of analyzing the internal operations of the business which managers know and actively control, through the analysis shows the strengths and weaknesses in the business of firm to develop strategies to promote the strengths and overcome weaknesses The environmental analysis requires to collect and handle information on: production, management operations, financial operations, human resources, research and development, marketing and information systems of the business

* Internal factor evaluation matrix (IFE)

Internal factors are considered very important in every business strategy and objectives that the business has proposed, after considering internal factors, the strategic manager needs to make the matrix of these factors with the aim at

= Nn

considering the possibility to react and recognize the strengths and weaknesses From there to help the business maximize strengths and prepare the internal resources to confront the weaknesses and finding ways to improve these weaknesses In order to form a matrix IEF needs to perform the following five

-Step 3: Determine the weights for each factor in the point range from | to 4, where 4 is very strong, 3 is quite strong, 2 is quite weak, | is very weak

-Step 4: Multiply the importance of each factor with its weights to determine the score of factors

-Step 5: Sum up score of all the factors, to determine the total score of the matrix

Table 1.3: Matrix IFE

Point Score

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advanced realism, flexibility Goals must be clearly defined on the time of implementation and should determine by quantitative indicators Goals are classified according to time including short-term goals and long-term goals Goals are classified according to characteristics including fast growth targets, stable growth objectives and decline growth targets

4.5 Combined Matrix (SWOT):

- SWOT Matrix is a tool that combines the internal and external factors

to form the matrix of strengths - weaknesses, opportunities - threats

-A combination of internal and external important factors is the most difficult task of developing a SWOT matrix, it requires good judgment, and will not have a best combination Usually, companies will pursue the strategies WO,

WT or ST for them to stay in a position which can apply SO strategies

To conduct SWOT analysis, write down and answer questions related to:

Strengths; Weakness; Opportunities; Threats

-Strengths and weaknesses are often derived from the inner of your organization Opportunities and threats are usually connected with external factors Therefore, it can be considered SWOT is an important tool due to it has large covering range for an organization

Table 1.4: SWOT Matrix

SO strategies ST strategies

S: Strengths Use of strengths to take Use of strengths to limit the

List out the strengths advantage of opportunities impact of threats

lý

With AS is attractive score and TAS is total attractive score

Classification for the factors in the same classification level in EFE and IFE

matrices Attractive score (AS) will be from 1 (not attractive) to 4 (very

attractive) Calculating attractive score (TAS) by multiplying the score of

classification with attractive score

The group presents some basic theories on business strategy and tools

will be applied to analyze and develop business strategy for the period of 2012 -

2015 for Vietnam Joint Stock Commercial Bank for Industry and Trade

(Vietinbank)

18

CHAPTER II ANALYSIS OF OPERATION ENVIRONMENT AND CURRENT BUSINESS SITUATION OF VIETNAM JOINT STOCK

COMMERCIAL BANK FOR INDUSTRY AND TRADE

II / OVERVIEW OF VIETINBANK:

1./ General information of Vietnam Joint Stock Commercial Bank for Industry and Trade

Name: Vietnam Joint Stock Commercial Bank for Industry and Trade

English name: Vietnam Joint Stock Commercial Bank for Industry And

Trade

Abbreviation: VIETINBANK

Establishment:

March 26 1988 Establishment of the specialized banks

November 14 1990 Renamed into the Industrial and Commercial Bank

2 / Functions and tasks of VIETINBANK

Multi-industry and multi-field business on finance, monetary, credit,

banking and non-banking services in accordance with the regulation of the law, constantly improving the profitability of the bank, contributing to the implementation of national monetary policy, serving the country's economic development

3 / Business activities of VIETINBANK

- Cards and electronic banking

- Other activities

4 / Organizational structure of VIETINBANK:

- Vietinbank is a large commercial bank, which plays an important and pillar role of Vietnam banking sector

- Vietinbank has developed an operations network comprising of 01 head office, 01 transaction center; 150 branches (of which 02 branches in foreign countries) and over 1,000 transaction offices/savings account Total number of employees of the entire system is more than 18,000 people

- Vietinbank has 07 independent accounting companies including Vietinbank Leasing Company, Vietinbank Securities Company, Vietinbank Asset Management Company, Vietinbank Insurance Company, Asset Exploitation and Debt Management Company Limited; Gold Jewelry company Limited; Union Company Limited and three non-productive activity units as Vietinbank Information Technology Center, Vietinbank Card Center, Human resources Training and Development school

- Vietinbank is founder and venture partner of IndovinaBank

- Vietinbank has a dealer relationship with over 900 banks and Financial

Institutions in over 90 countries and territories worldwide

- Vietinbank is official member of Vietnam’s Banker Association, Asian

Banker’s Association, Society for Worldwide Interbank Financial

Telecommunications (SWIFT), Visa and Mastercard International Services

Chart 2.1: Organizational structure:

Chart 2.3: Organizational structure of Transaction center, branch

level 1, branch level 2

5 Business operation results

Table 2.1: Vietinbank’s results of business activities in 2011

Unit: billion dong

~VIETINBANK has constantly expanded its scale of operations over the years,

as of 2011, total assets are approximately VND 460,241 billion classified as the

NO N

top of the domestic banking system Although in 2010, 2011 are years the world and domestic economy are more complicated, business production is difficult VIETINBANK has tried a lot to implement possively the Government’s guidelines, supporting interest rates to the economy, carrying out stable business which achieves or exceeds the targets

- For profit, it always achieves results of the next year higher than previous year From 2008 to date, VIETINBANK’s business effectiveness has had good growth, particularly business results by 31/12/2011, profit before tax

is VND 8105 billion which exceeds proposed shareholder resolutions The earned profit above is due to significant contribution from credit and investment operations

- Despite the difficult economic conditions, raising capital sources of banks continue to drop, especially on the market 1, Vietinbank still remains growth of 24% This helps Vietinbank ablway stablize on liquidity does not fall into the whirlpool of race of interest rates on the market 1 (mobilized from the population, economic organizations) or loans on the market 2(interbank market)

- Credit growth and investment of Vietinbank also increases 23.1% contributing in large part to the bank's profits in 2011 Thus, after nearly three years of officially moving its operation to the model of joint stock bank has gained encouraging achievements Growth targets are high, business operation

is quality, safe and efficient

- Besides, Vietinbank continues to innovate and upgrade the organization, management and simultaneoulsy accelerate the equitization process Training to improve the quality of human resources, promoting investment and technological innovation, improving the quality of products and services, controling bad debt The result is that although credit growth and investment is

at a high level, bad debt of Vietinbank is still under control and low at 0.75% compared to the industry average about 3.6 -3.8% in late 2011

- Vietinbank is also leading business to contribute to the implementation

of the work of social security From 2007 to date it has funded over VNF 1,500

23

billion of which it funded VND664 billion in 2011 Vietinbank is also the bank which is continuously ranks in the Top 10 businesses who pay taxes in Vietnam

In recent years

For market share:

VietinBank is one of the largest banks in Vietnam with a market share of loans accounting for 11.6% of the whole system, the market share of mobilization accounts for 12% of the whoe system and as one of the leading banks in the area of mobilization of domestic currency In the field of card issuance, VietinBank’s market share accounted for 18% of domestic credit card market and 23% of international credit card market in the country in

2010 In the context of instable economy, unfavorable exchange rates and fierce competitive conditions when large state-owned banks have lost their customer market share for stock commercial banks, VietinBank has still obtained success in increasing the market share held by more than 13.5% market share of trade and export finance and remittance pay of 05 early months of 2011, an increase of 1.5% compared to 2010 In 2011, Vietinbank’s sales of import payment was $ 10.6 billion and export payment

of Vietinbank was $8.4 billion, the balance of monthly average guarantee was $678.3 million However, with market share above is not commensurate with the potential and advantages of the system

IV / EXTERNAL ENVIRONMENT ANALYSIS OF VIETINBANK

1 / Macro-environment analysis according to the PEST model:

Macro environment is general factors an economy, politics, law, government,

culture and society, population, nature, world that affect all business industries

and all of financial institutions In the business environment of the bank, such

as factors of economy, law and policy often influence the most powerful and direct to the activities of the bank

1.1 Influence of Politics - Law:

- Vietnam today is a country with political stability, with a leading Communist Party, the unity ethnics So, political stability will be a good

environment for the operation of the banking sector im gencral and VIETINBANK in particular

- The government has made good legal framework for the banking activities as enacted and gradually completed the laws such as the Law of the Vietnam State Bank: Law on Credit Institutions; at the same time, the Government has promulgated Civil Code, Land Law in which there are very clear rules on collateral for loans, and the transaction decrees of loan guarantee which help loan investment activities of the bank be guaranteed safety However many provisions of the Acts are overlapped and not unitied affecting the operation of the Bank in general and VIETINBANK in particular

- The license for too many Joint Stocks Commercial Bank activities in the years of 2006-2007 made "explosive" activity in both size and diversity of the banking system in recent times which have potential risks and great risk directly impacting on the safety and health of the commercial banking system

It is an important cause leading to the restructuring of the banking system to prevent systematic risk in 2011 with the first merger of 03 banks as Vietnam Tin Nghia Bank, Saigon Commercial Bank and First Bank

- In 2011, the Government has issued Resolution 11 with the target of concentrating on controlling inflation, stabilizing macro-economy, ensuring social security State Bank implement tight, cautious monetary policy, harmonious coordination between monetary and fiscal policies to control inflation; administration and control to ensure credit growth in 2011 is less than 20%, the total payment mean is about 15 to 16%; Focus priority on credit capital for business development, agriculture and rural development, export and supporting industries, small and medium enterprises, reduction of speed and the proportion of credit loans by non-productive sector, especially in the area of real estate and securities These are macro-economic policies impacting deeply

and widely on activities of commercial banks, Vietinbank included

1.2 / Economic impact:

- In the end 2010, the world economy had more positive signals, the economic growth of Vietnam achieved positive results, the whole year 2010,

N an

GDP reached 6.78% - 6.5% exceeding the target of Government - still in the

group of relatively high growth in the region and the world, in which all

sectors industries have achieved higher growth rate than the previous year

Chart 2.4: GDP growth speed of the economic areas in the period of

(Source: Vietnam General Statistics Office)

With this result, per capita GDP reached USD 1160 in 2010, higher than

previous years and tended to gradually increase in 10 recent years

Chart 2.5: GDP per capita in the period of 2000 to 2010

September 2010; Report to the Prime Minister about the economic - social situation in 2010

and missions 2011

26

-However, turning in 2011, the growth of the countries with rising economies still have high growth, average 6.3 % (as reported by World Bank), but the problem of inflation is in danger of spreading globally In 5/2011, China's inflation rate was up to 5.5%, the highest record in 34 past months The inflation of India and Russia is approximately 9%, many other countries have high inflation in two figures The main reason is because prices of world fuel material commodities rise, especially erratic fluctuations of fuel prices Chief economist of the International Atomic Energy Agency (IAEA) said that if the world oil price reaches 120 USD/barrel, the world economy could fall in the second recession

- New challenges of the world economy have had negative impacts on the

economy of Vietnam Under such circumstance, in 2011, the Government has

implemented various synchronious measures to focus on inflation control, stabilization of macro economy, ensuring of social security, in which the clearest measures are shown at the Resolution 11/NQ-CP The implementation

of the Government’s Resolution 11/NP-CP has helped the economy in six first months of 2011 achieved positive results: the economy maintained growth

momentum with GDP growth estimated at 5, 6%, revenue increases, deficit

reduced, exchange rate, foreign exchange market gradually stabilized, foreign reserves increased, social security was concerned But in 2012, our economy will continue to face challenges:

+ The first is inflation Inflation in Vietnam has increased highly and lasted throughout 5 last years Vietnam's inflation has many causes, including monetary policy, fiscal policy and price control issue

+ Second is a matter of high interest rates causing the internal economy reviving as domestic production business is more difficult

These difficulties affect largely the business operation of banking system in general and Vietinbank in particular

1.3 / Cultural, social effects

- Vietnam in recent years has have continuous economic growth compared

to the region and the world, with growth averaging of 7.5%/year, in 2010

ai

growth was 6.78%, people's income continued to rise In 2011, the average income per capita is approximately $1130, the people with high-income are mainly in large cities and industrial areas where the market share has a great influence on the Bank's products and services, here are factors greatly affecting the operation of VIETINBANK

- The people's intellectual standard is increasing The process of urbanization is taking place rapidly With income and living conditions are improved more, customers demand increasingly high, complicately and extremely diverse in the use of banking products and services Customers demand from the bank products and services of high quality with the convenience of many products of modern banking services of banks can not meet This is challenge opportunity for banks in the improvement and development of products to capture and meet such requests

However, the cash use routine of payments is still very popular among the people This is a challenge for the banking industry to change this habit

1.4 / Technological impact

- Currently, the economy is increasingly expanding the integration of advanced science - technology from the world into the country especially in the field of information technology applica for all industries in the country This is factor affecting the application of technological innovation in the business

operation of VIETINBANK

- Advanced scientific and technological level has been applied to fields in

the operation field of the banks on the world to achieve highly effectiveness mow it’s integrated into the country as favorable condition for the operation of tthe bank accessing modern equipment, machinery and new technology which is replaced by manual labor It has created for the Bank to develop products and services which are diversified and mordern to meet better market demands This factor will affect VIETINBANK in modernizing its technology and research to offer new banking products and services

- To be able to compete with foreign banks with advantages in technology, clomestic banks must continuously improve their technology Also, transfer of

28

technology and automation between banks increases, resulting in joint venture

to support the new technologies together However, investment in technology

of banks is still independent, with no need to connect, share resources and communicate with each other, reducing the effectiveness of interbank information systems as well as reducing customer benefits such as information

connection problems in the card account and system credit between banks,

- Another factor is that the telecommunications and_ information

technology system still have many disadvantages Quality of national network, data transmission is unstable, slow speed, high cost, impacting on information technology system and the quality of banking services Changes in technology affect business operations of the bank strongly

1.6 Impact of demographic factors:

According to Vietnam General Statistics Office: Average population of the country in 2010 was about 86.93 million people, increased 1.05% compared

to 2009 In particular, the population in urban areas is 26.01 million people, accounting for 29.9% of the total population, increased 2.04% compared to last year, the population in rural areas was 60.92 million

Income and living standards between urban and rural areas and ethnic minorities remain great distance The average of an urban household consumes

&5% more than rural households

Spending proportion of 80% of the poorest population is increasingly decreased, while the proportion of spending of the richest households is

2g

¡increased According to 2006 data spending difference in per capita between the richest and poorest households was 4.54 times The disparity in income can imake a great pressure of urbanization and migration to the cities

The changes in geography, demographics, culture and society affect the introduction of products and services as well as network development plan of the bank

2./ Analysis of industry environment:

- Property of Vietnam's banking sector continues high growth in the period of 2010-2050 According to the forecast of PWC, the asset proportion of

‘Vietnam banking sector over the world will increase from 0.2% in 2009 to 1.4% in 2050, while growth rate of average annual assets in period of 2010 -

2050 of Vietnam banking sector is forecasted to gain 9.3%, higher than many

countries in Asia such as Indonesia, Korea, China and Japan and on par with

India The rapid growth in size of assets of Vietnam banking sector in the next wears, one side shows good development prospect of the industry but on the other hand also requires improving the quality of asset management to achieve profitability corresponding to that scale

- Credit growth will be maintained at prudent level: Actually, what happened in 2010 shown that the hot credit growth and quality control of bad loans is one of the main causes leading to inflation and asset bubble as present

‘Therefore, starting from 2011, the State Bank has limited the growth of credit,

especially with some high-risk sectors in order to overcome the above situation

We believe that, in the following years, the State Bank will continue to be caustious with general credit policy of the whole industry and not letting the Situation of hot growth happen in recent years

- Intense competition from foreign banks will force the local banks to

continue to improve technology, corporate management and transparency

‘Advantage of technology is fundamental for the foreign banks to provide the Products and services which are more sophisticated and more useful, since then tio develop strongly the array of retail banking and achieving higher profit margins than local banks In particular, the development of card services is one

30

of the spearheads of this business array According to the evaluation of State Bank, in 2010 there was 80-85% transactions in cash done by the individual customers, while card transactions accounted for only about 5% The reason is explained due to no proper investment of the domestic commercial banks in ATM and POS systems However, at the end of 2010, Banknet and Smartlink, the two largest card alliances in Vietnam inter-connected the network of ATM and POS for the banks belonged the two systems, while Banknet and VNBC (Vina smart card JSC) also inter-connected to the POS system in 11/2010 We think this is an evidence that shows the local commercial banks are making their effor to improve their technology systems to meet the demand for payment cards and online transactions of customers under the pressure competition of foreign banks Through the issuance of Credit Institution Act 2010, the State Bank has also shown its determination to improve transparency and management capability of local banks, focusing on further strengthening the organization and management of Credit Institutions to aim at closer approach to

international standards Also, Circular 09 prescribes the disclosure of

information which is currently taken opinion to complete and replace in the direction of expanding the scope and classification of objects regulated This is also a prerequisite to improve transparency in the operation of enterprises in general and banks in particular in the near future

2.1 / Position of Vietinbank in the industry:

So far, VietinBank is now one of four largest commercial banks in the market with 10% of total assets of the entire system, the market share of captial mobilization accounts for 12% market share of loans accounting for 11.6% of

the entire system, network of branches and transaction offices nationwide ranks

second after Agribank With a good brand and strong relationships with many traditional customers, along with strong financial background, VietinBank has always been one of the leading banks in Vietnam

a1

Chart 2.6: Activity network of VietinBank and other banks

Source: Annual report of banks

VietinBank with other banks in 2010

Total Assets (VND billions) Chartered capital (VND billion)

Source: Financial statement of the Banks in 2010

+ 25000

20000 isooo

10000

sooo

Chart 2.8: Correlation between total assets and chatered capital of

VietinBank with other banks in 2010

mg Total assets (billion donp)—~##— Chartered capital (billion dong)

Source Financial statements of the Bank in 2010

10000

5000

Chart 2.9: Property, outstanding, Mobilizing

(Data consolidated in financial statements) Indicators of total assets, loans, capital mobilization are led by Vietinbank (CTG), followed by

BIDV and Vietcombank

Chart 2.10: CAR, Bad debt (CAR: minimum capital adequacy ratio)

Bad Debt (bio dong) 7,403 7,478 S952

Bad debt ratio 2.67% 3.94% 1.44%

-Bad debt (debt of groups 3-4-5) of BIDV and Vietcombank is equivalent with more than VND7.400 billion, while Vietinbank is less than VND 4,000 billion -In terms of bad debt ratio over total debt balance, Vietinbank is lowest reaching 1.44% Vietcombank and BIDV are 3.94% and 2.67%, respectively

Chart 2.11: Human resources scale

By 30/9/2011, Vietinbank (CTG) has more than 18,300 employees, 1.5 times

more than VCB BIDV’s employees are more than 16,500 people

Chart 2.12: Profit, ROA and ROE

Table 2.3: Compare profit between BIDV, VCB, CTG

-In the first 9 months of 2011, the profits of Vietinbank soared to about

VND6,000 billion, higher than 30% in 2010

-VCB reached VND4615 billion, profits may increase strongly in Q4 when accounting profit from the sale of shares of Shinhan Vina Bank

-BIDV reached 3182 billion dong of profit before tax of 9 months According

to published information of equitization, PBT of first 11 months of BIDV reached VND4100 billion

2.2 / Competitors in the industry

- In recent years, we see the banking business operation has had many

developments and new changes, business activities of ne establishment joint-

stock banks have an exceptionally high rate of growth, the foreign Banks invest and joint venture in Vietnam Especially from 2008 back, the world and domestic economy has many complicated changes which have created many new opportunities and challenges for the Bank's activities The banks emulate the scale growth, expand network of activities, creating competition increasingly fierce Today, our country is forming five types of commercial banks including:

+ Commercial State Bank