Improving the competitiveness of vietnamese joint stock commercial banks

4 Table of Contents Page I.1 Concept of competitiveness of commercial bank I.2 Theories of evaluation of the competitiveness of commercial bank 5 I.3 Measuring tool for evaluating t

IMPROVING THE COMPETITIVENESS

OF VIETNAMESE JOINT STOCK COMMERCIAL BANKS

In Partial Fulfillment of the Requirements of the Degree of

MASTER OF BUSINESS ADMINISTRATION

IMPROVING THE COMPETITIVENESS

OF VIETNAMESE JOINT STOCK COMMERCIAL BANKS

In Partial Fulfillment of the Requirements of the Degree of

MASTER OF BUSINESS ADMINISTRATION

In specialization

By

Mr Vu Van Thanh ID: MBA 02033 International University - Vietnam National University HCMC

August 2013

Under the guidance and approval of the committee, and approved by all its members, this thesis has been accepted in partial fulfillment of the requirements for the degree

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Acknowledgments

To complete this thesis, I have been received many help and counsel of many people From the beginning, I would have been incapable of writing and re-writing without the encouragement, critical responses of many people whom I now wish to acknowledge with very appreciation and gratitude

First of all, I would like to express my sincerely thank to my teacher – Mr Nguyen Kiem Than, and all of teachers in the Committee of Examination, who have saved much time

to correct, and recommend ideas to my thesis I also express my gratitude to all teachers of HCMC International University, who have taught and given me a lot of useful knowledge during my studying at the International University

Many thanks to officers, friends working at the State Bank, commercial banks, Social and Labor Services, Statistics Department, who have provided me necessary data regarding the operation of commercial banks that help me to complete my thesis

I do hope that my thesis will partly bring useful references to people, even small references

Respectfully,

Vu Van Thanh

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Copyright Statement

This copy of the thesis has been supplied on condition that anyone who consults it is understood to recognize that its copyright rests with its author and that no quotation from the thesis and no information derived from it may be published without the author’s prior consent

© VU VAN THANH / MBA 02033 / YEAR 2013

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Table of Contents

Page

I.1 Concept of competitiveness of commercial bank

I.2 Theories of evaluation of the competitiveness of commercial bank 5

I.3 Measuring tool for evaluating the competitiveness of commercial bank 6

II.2 Construction of competitiveness measuring tool 8

II.4 Data analysis

II.4.3 Analysis of relation among components of competitiveness 12

Chapter III Evaluation of the competitiveness of commercial banks

III.1 Evaluation of all components of the competitiveness 14 III.2 Evaluation of the competitiveness of commercial bank 19

Chapter IV Solutions for improving the competitiveness of commercial bank

IV.1 Experiences for improving the competitiveness of banking system

IV.2.1 Experiences from other countries 20

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IV.2.2 Experience lessons for Vietnamese commercial banks 22

IV.2 Solutions of improving the competitiveness of commercial banks

IV.2.1 Improvement of human resources quality 24

IV.2,2 Improvement of technology potential 26

IV.2.3 Improvement of financial strength 27

List of Figures

Page

Figure 1Bad debt of Vietnamese commercial banks 1

Figure 2Mergence among Vietnamese commercial bank 1

Figure 3The number of commercial banks over years 2

Figure 4Measuring tool for evaluating the competitiveness 6

Figure 6Components of competitiveness in details 10

Figure 8Cronbach Alpha coefficient of financial capability 36

Figure 9Cronbach Alpha coefficient of Services and products quality 36

Figure 10 Cronbach Alpha coefficient of human resources quality 37

Figure 11 Cronbach Alpha coefficient of technology capability 37

Figure 12 Cronbach Alpha coefficient of distribution network 38

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Figure 13 Cronbach Alpha coefficient of brand name strength 38

Figure 19 Summary of value of Cronbach Alpha and EFA 42

Figure 24 Rate of fund mobilization of commercial banks 49

Figure 25 Rate of lending of commercial banks 49

Figure 27 Mean of services and products quality 15

Figure 30 Rate of education qualification of commercial banks 53

Figure 32 Core banking software of commercial banks 52

Figure 34 The number of ATM and POS of commercial bank 51

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Figure 36 Appraisal of competitive capability of commercial banks 19

Figure 37 Solutions of improving banking operation in Asian countries 21

Figure 38 Effect of restructuring banking system in Asian countries 22 Figure 39 Selling stocks to foreign financial institutions 23

Figure 41 Classification of Vietnamese commercial banks 55

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A B B R E V I A T I O

N

VNSCB Vietnamese State Commercial Banks

VNJSCB Vietnamese Joint Stock Commercial Banks

Foreign

VCB The Bank for Foreign Trade of Vietnam

BIDV The Bank for Investment and Development of Vietnam Viettinbank The Bank for Industry of Vietnam

Agribank The bank for Agricultural and Rural Development of

Vietnam ACB Asia Joint Stock Commercial Bank

EIB Export and Import Commercial Bank

Sacombank Saigon Commercial Bank

TCB Technology Joint Stock Commercial Bank

Navibank Nam Viet Joint Stock Commercial Bank

VIB Vietnam International Commercial Bank

CAR Capital Adequate Rate or Minimum Safe Rate

EFA Effective Factor Analysis

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Introduction

1 Reasons of improving the competitiveness of Vietnamese commercial banks

Recent years, Vietnam banking operation has faced many difficulties For instance, lending money to customers, but it was hard to collect it, or could not collect it; embezzlement from banking officers made a big loss to the bank and so on As a result, bad debt increased over years, especially bad debt was up to 10% in 2012 (Figure 1), and there were many cases of mergence among Vietnamese commercial banks due to ineffective operation (Figure 2)

e 1 Bad Debt of Vietnamese Commercial Banks

Bad Debt of Vietnamese Commercial Banks

Description 2009 2010 2011 2012

Lending amount (VND 1.000 billion) 1,754 2,301 2,577 2,800

Sources: Banking Technology Magazine 2012 (6)

No Year Mergence among Vietnamese Commercial Banks

1 2011 First Bank + Tin Nghia Bank + Saigon Bank

2 2012 Habubank + Saigon Hanoi Bank

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Figure 2 Mergence among Vietnamese Commercial Banks

3 Western Bank + Petro Vietnam Finance Company

4 2013 Dai Nam Bank + Southern Bank

Sources: Banking Technology Magazine (6), and Internet 2012-2013

Figure 3 The Number of Commercial Banks over years

We wonder whether Vietnamese commercial banks can stabilize and compete to other bigger banks in the coming time

Originated from the above reality, I would like to choose the topic of improving the competitiveness of Vietnamese commercial banks as my final thesis

2 Objective and scope of research

Sources: Reports of Vietnamese State Bank (38)

3 Research methodology

The research of competitiveness of commercial bank will be made in three stages

In the first stage, we find out a model for evaluating the competitiveness of commercial bank In order to do that, we first study the existing theory models of evaluation of competitiveness from the Economists and build a measuring tool of competitiveness Then, we will meet some banks managers to get more opinions of evaluation of competitiveness of commercial banks, to clear and to perfect the competitiveness measuring tool and make a question table for the research

In the second stage, we will verify the reliability of the research model or the measuring tool built on the first stage We base on the question table to interview banking officers and get their evaluation of the competitiveness of commercial bank From these evaluation, we use SPSS program to calculate some coefficients as Cronbach Alpha, Effective Factor Analysis ( EFA), and Regression Linear for analysis

In the third stage, we use the mean analysis to evaluate the competitiveness of Vietnamese joint stock commercial banks

4 Material resources

I.1 Concept of competitiveness of commercial bank

I.1.1 Concept of competitiveness

The terms of competitiveness is often used to evaluate competitive capability of a country, an industry, an enterprise, and other fields Depending on research view, there will be different basic content for the research For instance, improving living standard and benefit for people is the object of a country, while the object of an enterprise is profitability Although, there have been many study projects of the competitiveness, but we did not unify the definition of competitiveness yet

According to the World Economic Forum (33), the competitiveness of a country was the capability of the country that gained quick and exact achievements about high economic growth calculated by general domestic product per person

A Summit on industry competition of the Organization for Economic Cooperation and Development (34) supposed that competitiveness was the capability of enterprises, industries, countries in creating jobs, higher income in the condition of international competition

According to Michael Porter, the Professor of Harvard University, enterprises having competitiveness would either make higher progress than middle level about

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commodities quality and services or be able to reduce expenses to increase profit, market share and so on (25) He also supposed that in order to succeed in competition, enterprises should have the competitive advance under the form of either low manufacturing cost or product differentiation to reach the higher price level than normal price, then provide best products or services and manufacture products with high effect

I.1.2 Concept of competitiveness of commercial bank

Like the enterprises, banks also face other competitive rival to gain the market share Competition in banking business is the process of attracting, finding customers in the market Actually, competition in banking business is not different from competition of other industries But, banking business has some specific characteristics as follows:

Banking business is affected by many factors of economy, politic, society, psychology, and so on Only a bad rumor will affect seriously banking system

Baking operation is related to many economical, political institutions, individual through activities as fund mobilization, loan, and other banking services If one bank faces difficulties, or goes bankrupt, other banks will also face difficulty Therefore, bank not only compete with each other, but also co-operate in doing business

Banking operation is controlled by the State bank and required a high tech equipment Mainly capital resources for banking operation come from outside mobilized capital, and owned capital occupies a small rate in operating capital resources

Customers of commercial banks are either the suppliers of input products or the users

of banking products

According to Ph D Nguyen Thi Quy, competitiveness of a commercial bank was the capability of the bank itself in creating, maintaining, and developing advantages to maintain and develop market shares, to achieve profit higher than that of industry, to ensure the safe and strong operation, and to be able to overcome fluctuation of business environment (14)

I.2 Theories of evaluation of the competitiveness of commercial bank

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According to Michael Porter (25), evaluation of the competitiveness of an enterprise

would base on product, distribution channel, marketing operation, financial capability, technology, and management ability He explained product position in

every sector of market would influence the consumption capability of customer; Distribution channel included the cover level in the market and its quality; Marketing operation expressed product selling, product introducing skills; Finance capability showed in its capital mobilization; Technology was ability of study and development

of production line, and management ability showed in leadership ability and leaders

moral problem

According to Victor Smith (35), banks needed to develop the following competences

to compete with other banks such as brand name, product, service, intellectual sources, and finance capability By introducing and expanding brand name to

everyone, bank could raise its value in the stock market The success in brand management would increase trust and satisfaction to customers of the bank Product had value to customers when it satisfies demand of customers Service had two parts that was customer interface and transaction execution Intellectual sources showed human resources quality, management ability Cost and infrastructure showed ability

of expense management, risk management, safety, and law compliance

According to CAMEL model (27), one of the models of ranking credit institutions, the

competitiveness of commercial bank also based on such criterions as capital adequacy, asset quality, management ability, earning, and liquidity ability In this

model capital adequacy showed in owed capital to support banking operation; the more risk bank accepted, the more owned capital the bank had in order to cover risky Asset quality was one of the reasons caused bankruptcy Management ability would decide the success of banking operation Earning was an important indicator to evaluate the effect of banking operation Liquidity ability would help the stability of banking operation and bring trust to customers

I.3 Measuring tool for evaluating the competitiveness of commercial bank

Basing on the above theory models of competitiveness evaluation, we first draw a set

of measuring tool for evaluating the competitiveness of commercial bank including six components such as component of financial capability, diversification of products

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and services, human resources quality and management ability, brand name strength, technology capability, and component of distribution network In other words, the competitiveness of commercial bank depends on six these components (Figure 4)

F

Figure 4 Measuring Tool for evaluating of the competitiveness of Commercial Bank

Chapter II Research Methodology

II.1 Research Process

The process of research of the competitiveness of commercial bank is described in the below figure 5

- Delete illegal variable that has small correlation coefficient -> - Verify Cranach alpha coefficient

- Check general reliability coefficient KMO

-> - Calculated extracted variance value

- Check convergence of variables to verify

The reliability of the research model

Financial Capability Diversification of Products and Services Competitiveness of Human Resources quality and Management Ability

Technology Capability Distribution Network

To set up a detail measuring tool for the research

To interview 5 bank managers to adjust the measuring tool

Preliminary measuring tool for evaluating the competitiveness

Regression Linear

Analysis

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-> - Check collinear of components of competitiveness

- Check degree of accuracy Sig value of each component

- Set up the regression linear equation for the research model

-> - Evaluate the competitive level of each component

- Evaluate the competitiveness of commercial bank

Figure 5 Main Research Process

II.2 Construction of a competitiveness measuring tool

Basing on the competitiveness measuring tool drawn from the above theory models,

we interviewed about five bank manages to exchange, share ideas, and supplement some more details in the measuring scale for evaluating the competitiveness of commercial bank as follows:

For financial capability

Financial capability of commercial bank shows in owned capital, ability for lending, ability for mobilizing capital, and profitability coefficient such as return on equity (ROE) and return on assets (ROA) Strong financial capability helps a bank to develop market, enhance product quality and services and so on As regulated, banks must have a minimum legal equity to open a new branch; or bank only provide a limit sum of amount to one customer due to its legal capital and so on Increasing financial capability is necessary for bank to enhance operating scale, modernize technology, and bring trust to customers who want to put their money in or to do business Ability

of mobilizing capital also reflects the strength about capital of the bank Profitability and lending ability also show the effect of banking operation

For diversification of products and services

Solutions for evaluating

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Diversification of products and services may include price and police for serving customers Diversification of products and services will satisfy much more demands from customers, and attract more customers to use banking services

For human resources quality and management ability

Human resources quality shows in education qualification, policy in attracting employees, and moral behavior of banking officers Ability of employees will affect work quality Employees of a bank will bring directly feeling of banking services, products to customers as well as create trust to customers Especially, in the current fierce competence, the enhancement of capability of employees in banking knowledge, skills and awareness of operating environment is very necessary to develop business Bad moral from banking officers will make a lot of troubles to the bank, reduction of credibility of the bank, brand name, and profitability decrease

For brand name strength

Brand name strength consists of social donation activities, co-operation in banking business, and trust to customers Being trusted by customers will help the bank to attract more customers and create competitive advantage against other rivals Donation to social will make more people know more about the bank name Well cooperation with other banks will enhance the strength of commercial bank in and out the countries

For technology capability

In banking business, applying technology is one of the factors for creating the competition strength of a bank High technology will help the bank to develop its products, especially payment services and other electronics services products Technology will help a bank to create differentiation from rivals Apart from using ATM, POS, and core software in banking operation, ability of upgrading and improving software of bank also express competitive capability of commercial bank

For distribution network

The increase of operation network of bank such as transaction office, branch is also one of the important factors of commercial bank It is an effective channel for a bank

to increase market share and compete with other banks The number of ATM or POS

22 are called independent variables, and variable 23 is called dependent variable

I Financial Capability II Products & Services Quality

A2 Profitability (ROE and ROA) A6 Policy of serving customers

A3 Funding Mobilization Capability A15 Product Diversification

A4 Lending Capability A16 Competitive Product Price

III Human Resources Quality IV Brand Name Strength

A7 Employees Qualification A17 Social Donation Activities

A8 Human resources Policy A18 International Co-operation

A9 Leadership Capability A19 Be trusted by Customers

A10 Employees Moral

etails of Components of competitiveness

In this stage, we also create a question table for evaluation (Figure 7) In the question table, we use a Likert measuring scale of five lever of answer from 1 to 5 to evaluate competitive capability of commercial bank, in which number 1 means absolute disagree, number 2 means disagree, number 3 means acceptable, number 4 means agree, and number 5 means absolute agree

V Technology Capability

A11 Product Research and Development Quality

A12 Capability for Upgrading and Developing new Technology

A13 Software for Banking Management

A14 Effect of payment by ATM and POS

VI Distribution Network

A22 Convenience of Location of ATM

VII Competitive Capability

A23 Competitive Capability of Vietnamese Commercial Banks

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II.3 Collection of research data

We interviewed and delivered the question tables to 250 banking officers who are working at the commercial banks in Ho Chi Minh City and Dong Nai Province to get their opinion for evaluating the competitiveness of commercial banks However, only

234 question tables are collected for data analysis Remaining 16 question tables are not legal for the research, because they are not filled up and finished

After receiving back 234 question tables from the evaluators, we use SPSS software

to calculate some coefficients as Cronbach Alpha, Effective Factors Analysis (EFA)

to evaluate the reliability of variables and components of competitiveness, and regression linear to find out the relations and influences of components to competitive capability of commercial bank

Then, we use mean analysis to every variable and component to evaluate the competitive level of each component and the competitiveness of commercial bank

II.4 Data analysis

II.4.1 Character of research sample

The question table or survey sample made in December 2012 were delivered to and collected from 234 bank officers working in HCM City and Dong Nai Province where

I am working now, in which 110 officers from four (4) Vietnamese State commercial banks (VNSCB) such as Vietcombank, BIDV, Viettinbank, Agribank, 85 officers from eighteen (18) Vietnamese joint stock commercial banks (VNJSCB) such as Sacombank, ACB, Techcombank, VIB, VPBank, Eximbank, DongABank, Maritimebank, HD Bank, Military Bank, Trust Bank, Southern bank, 5 officers from Shinhanbank - a 100% foreign owned bank, and 34 officers from HCMC State Bank who working at general research department, and inspection department They are supervisors, managers, and some directors of the banks We also calculated education level of banking officers to ensure quality of the research sample There are 208 banking officers graduated from Universities and 26 officers graduated after University, occupied nearly 89% and 11% respectively

II.4.2 Analysis of Reliability

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In this analysis, we calculate the value of Cronbach Alpha of every competitiveness component to delete illegal variables Then, we analyze the effective factors (EFA) to evaluate the reliability of component

- For Cronbach Alpha, we run the order of Analyze, Scale, and Reliability Analysis

Illegal variable that has the value of item total correlation smaller than 0.3 and cronbach alpha lower than 0.6 will be deleted from the measuring tool

As a result (Figure 8 to Figure 13), we found that cronbach alpha coefficients of all variables reached reliable level (> 0.6) The minimum value of item total correlation

is 0.525, and the maximum of that is 0.911 All variables are satisfied the above mentioned conditions Therefore, all variables of components will be used for the effect factor analysis (EFA)

-For EFA, we run the order of Analyze, Data Reduction, and Factor, with extraction

method of principal component and rotation method of Varimax The effect factor analysis (EFA) will be acceptable when KMO (Bartlett verification) is bigger than 0.5, total extracted variance is bigger than 50%, and eigenvalue is higher than 1 (Anderson and Gerbing, 1988)

As a result (Figure 14), we found that KMO coefficient is 0.648 with reliability level sig equal 0.000, it shows that all variables have correlated to each other; there are 6 new factors extracted at the eigenvalue of 2.001, and total extracted variances are 74.51% (Figure 15) All variables also converged in six components, and weight value of all variables are bigger than 0.6 (Figure 16) All variables are tightly related

to 6 extracted new factors Therefore, they all are appropriate and will be used in the competitiveness measuring tool or research model (Figure 19)

II.4.3 Analysis of relation between competitiveness components and competitive capability of commercial banks

Regression linear model with backward method will be used to evaluate the relation between six competitiveness components and competitive capability of commercial banks In regression linear of SPSS program, I put the average of each component into independent box, the competitive capability component into dependent box, and run SPSS program Standard for accepting this regression model is that sig value is smaller than 0.05, or equal 0.05, and there is no collinear among components of competitiveness (value of VIF <3)

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As a result (Figure 17), the sig value and VIF of all components of competitiveness satisfied conditions of regression linear Beta coefficients of every component are positive Therefore, all six competitiveness components are involved in and influenced to the competitive capability of commercial bank

Regression linear result shows the relation between six competitiveness components and the competitive capability of commercial bank as follows:

Competitive capability = 0.455 + 0.343 Technology capability + 0.138 Services and products quality + 0.103 Human resource quality and management + 0.177 Distribution Network + 0.054 Brand name strength + 0.069 Financial capability

In other words, all six competitiveness components are participated in the model of evaluating competitiveness capability, in which technology component has the strongest influence to the competitive capability of commercial banks, next is distribution network, services and products, human resource quality, brand name strength, and financial capability (Figure 17); for instance, when technology capability of commercial bank increases one (1) unit, the competitive capability of commercial bank will increase 0.343 units

Besides, there are also the relations among competitiveness components (figure 18), for instance, the relation between brand name strength and distribution network and human resource quality; the relation between technology capability and services & products diversification, and between financial capability and technology capability Other components have less or no relation

Chapter III Evaluation of the Competitiveness of Commercial Bank

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From the above analysis, we can see that all variables and components of competitiveness are reliable and influenced to research model Therefore, we can use mean analysis to evaluate competitive level of each variable in the component, and each component in the competitiveness of commercial bank

III.1 Evaluation of components of competitiveness

1 Evaluation of financial capability

Financial capability is measured by four variables, including owned capital (A1), profitability (A2), fund mobilization (A3), and lending capability (A4) We find that lowest mean is 2.09, the highest mean is 2.25, and the average is 2.17 (Figure 21)

Figure 21 Mean of Financial Capability

Mean of A1 and A2 are lower than the average; it means that owned capital and profitability of VNJSCB are low Mean of A3 and A4 are higher than the average; it means that activities of fund mobilization and lending of VNJSCB are rather good

However, in general, according to Likert measuring scale, the average value of financial capability component falls on the disagree level (2.17 < 3) Therefore, financial capability of joint stock commercial banks is evaluated low The weakness

of financial capability is mainly caused by low owned capital and low profitability

This result is also conformable to the secondary data collected from commercial banks (Figure 22, 23, 24, 25, and 26) According to Figure 22, 23, we find that owned capital of VNJSCB is low in comparison to VNSCB and foreign bank For instance,

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Eximbank’s owned capital, the biggest owned capital among VNJSCB, is still lower than that of VNSCB, and it is too small in comparison to banks in other countries, only reaches 1% of owned capital of Citigroup (USA), 1.6% of HSBC, 7.6% of Kookmin Bank (Korea) and so on Figure 24 and 25 shows the operation of lending and fund mobilization of commercial banks Figure 26 tell us the decrease of profitability rate of ROE and ROA of VNJSCB recent years

2 Evaluation of services and products

Figure 27 Mean of Services and Products Quality

As the above table, we can see that mean of A5 and A6 are lower than the average Mean of A15, A16 are higher than the average It shows that VNJSCB do not yet diversify much payment services and not pay much attention to customers A real survey to some joint stock commercial banks shows that the way of serving customers among branches in the same bank is different; In other words, service quality is different among branches of a commercial bank Therefore, it is necessary to train employees synchronously to improve service quality for all banking system Banking products of VNJSCB are rather diversified, and price of products is very competitive, especially there are many promotion campaigns to attract customers (Figure 28)

However, in general, the component of services and products quality of VNJSCB is evaluated not so bad Mean of variables and the average are approximately equal 3

3 Evaluation of human resources quality and management ability

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Figure 29 Mean of Human Resources Quality

In general, human resources quality and management ability of VNJSCB are evaluated at the normal level Its value is a little bigger than 3

Qualification of employees is getting better and better The rate of education level of VNJSCB and other banks is not much different (Figure 30) VNJSCB has good policies to attract employees, and management skill of leaders is also improved Mean

of variables of A7, A8, and A9 are higher than the average

However, mean of A10 is smaller than the average, it means moral problem of staff and officers of VNJSCB is not as good as supposition It is conformable to current real situation at Vietnamese joint stock commercial banks Many big losses that happened to the bank come from professional moral of employees as well as leaders Many embezzlement of employees and members of the Board of Management happened at Vietnamese commercial banks In 2010 and 2011 alone, loss amount from this action was up to thousands of billions of Vietnamese Dong (28,29, and 30) Recently, the embezzlement of a leader of Asian Commercial Bank (ACB) caused the loss of nearly VND 800 billion to the bank (32).It is one of the reasons that caused bad debt increase over years (Figure 40)

4 Evaluation of technology capability

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A12 ( Upgrade and improve technology) 2.93 0.27

Figure 31 Mean of Technology Capability Component

From the above table, we can see that mean of A12 and mean of A14 are smaller the average, it means VNJSCB do not upgrade and improve technology very often, payment system through ATM, POS is not much effective It may be the limitation of capital for technology investment

According to the calculation, mean of A11 and mean of A13 are higher the average VNJSCB has applied the software of core banking in management, and the research

of new products shows rather good The secondary data collected from some Vietnamese joint stock commercial banks (Figure 32) shows that much core software has been used for data management such as Symbol system, TCBS, T24, TI core and

so on

In general, technology capability of VNJSCB is not evaluated high VNJSCB should improve their technology to compete better to other banks

5 Evaluation of distribution network

Figure 33 shows that the number of ATM and POS of VNJSCM is not high, because mean of A18 is lower than the average of 2.82 Location for installing ATM, POS of VNJSCB is rather convenient for customers in doing business, and the number of branches of VNJSCB is also rather large; mean of A17 and A19 is bigger than the average of 2.82 Data collected from commercial banks show us that though the number of VNJSCB is not bigger than that of Vietnamese State Commercial Banks,

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but it is not smaller than foreign banks (Figure 34) In general, distribution network of VNJSCB is evaluated not high, because mean of all variables from is smaller than the

acceptable level of 3 as Likert measuring scale standard

Figure 33 Mean of Distribution Network Component

6 Evaluation of brand name strength

Figure 35 Mean of Brand Name Strength Component

The mean of variables in the above table shows that social donation activities and

expansion of international co-operation of VNJSCB are not much and not large as supposition VNJSCB is not trusted much by customers, because value of A22 is smaller than acceptable level of 3 The embezzlement of banking officers (28, 32) influenced the image, reputation, or brand name of the bank In general, brand name strength of VNJSCB is evaluated low It is necessary to improve the relevant factors

as moral problem of employees to improve brand name strength

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III.2 Evaluation of Competitive Capability of Commercial Bank

Mean of every component in the figure 36 tell us that financial capability of VNJSCB

is low; brand name is still weak; distribution network is not large; quality of products and services is not high; technology should be upgraded; quality of HR is normal, but employee moral should be improved In general, VNJSCB do not compete well to other banks at the moment according to the evaluation of banking officers

of shortage of capital, and low profitability over years Owned capital is low; therefore technology capability is not high

In order to adjust these values or improve competitive capability of commercial banks, we should improve human resources quality, especially the moral problem from employees to enhance brand name strength and service quality for all branches

in a bank; increase financial capability to enlarge distribution network and improve technology capability; strengthen technology capability to strengthen service quality

Chapter IV Solutions for improving the competitiveness of

Vietnamese joint stock commercial banks

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For improving the competitiveness of Vietnamese joint stock commercial banks, we should refer some experiences from advanced countries and reality in Vietnam to have a trend of development of banking industry Then, we can find out feasibility solutions for improving the competitiveness of commercial bank

IV.1 Experiences for improving the banking operation

IV.1.1 Experiences from Banks on the world

Below are some solutions that applied in reality for improving banking operation

Mergence and acquisition

It aims to form the bigger and stronger financial institutions as well as to increase the advantage of competition The 1st biggest mergence in European banking history particularly and in the global financial industry between ABN AMRO of Holland and Barclays PLC of England became the top banking corporation on the world [13] Next, the mergence between Bank of America and Merrill Lynch in 2008 [13] helped Bank of America became the top domestic bank in America in term of deposit amount and market capitalization Besides, the mergence between Wells Fargo and Wachovina helped Wells Fargo to increase its position in the market equal to other rivals in USA such as JP Morgan Chase and Bank of America Or the mergence between UFJ Holding and Mitsubishi Tokyo Financial Group became [13] Mitsubishi UFJ Financial Group that had a bigger asset value than Citigroup

Selling stocks to foreign investors

In 2005, Chinese Construction Bank (CCB) sold 9% its stock to Bank of America (BOA) with the price USD 3 billions [18], and in turn CCB would be supported by BOA for management of risk, informatics technology, finance, and human resources In Feb

2012, Citigroup, the 3rd big bank in USA, sold 145.3 millions of stocks occupied nearly 10% total its stocks to House Development Finance Bank in India with the price of USD 1.9 billion in order to meet the requirement on global safe rate regulated by Basel III[17] The entrance of foreign stockholders helped bank to get advance of financial strength and management experiences

Expansion of operation network

By the end of 2011, HSBC has setup 7,200 offices in 85 countries and territories [39]

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Diversification of products and services

Banking services develop very quickly in Thailand Fund managing companies and internet banking expanded in Singapore

Below table is to summarize some solutions for improving banking operation in Asia

14 (from 15)

Figure 37 Solutions of improving banking operation in Asian countries

Source: Nation Financial Security Committee in Dec 2011(9)

By applying the above solutions, the operation of banking system has been improved, for instance, market share of banks increased, overdue debt decreased, return on asset increased Figure 38 showed data before restructuring in 1996 and after restructuring banking system in 2005

Market share of banks

having foreign banks’ capital

5.2 -> 22 2 -> 12 4.5 -> 12 1.3 -> 5.5

Loan on GDP 31 -> 20.5 72 -> 90 48 ->35 107 -> 37

Overdue debt/total debt 37 -> 8.5 13 -> 2.4 12.6 -> 13.5 33 -> 11

Return on Assets -3.4 -> 1.7 -2.3 -> 0.75 0.6 -> 1 -4 -> 0.3

Figure 38 Effect of restructuring banking system in Asia countries

Source: Nation Financial Security Committee in Dec 2011(10)

IV.1.2 Experience lessons for Vietnamese banks

Recently, Vietnam has also restructured its banking system in order to enhance its financial strength, operating competence and compete in the market

Mergence

The mergence between Lien Viet Banks and the Post Office Company established Lien Viet Post Office Bank at the end of 2011 Before mergence, the Post Office Saving Company was not allowed to mobilize demand deposit from customers It reduced partly income from fund mobilization Therefore, the mergence help post office to enlarge its operation scope, and help Lien Viet bank to increase their market share (36)

The mergence between the Joint Venture ShinhanVina Bank (SVB) and Shinhan Bank Viet Nam (SHB) formed Shinhan Vietnam Bank at the end of 2011 Before mergence, legal capital of SVB and SHB were USD 30 millions and USD 150 million respectively After mergence, its legal capital increased to nearly USD 350 million;

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the number of branch increased from 3 to 7 (Bulletin of Shinhan Vietnam Bank

2012)

Another mergence was among three Vietnamese joint stocks commercial banks

including First Commercial Bank, Tin Nghia Bank, and Saison Commercial Bank in

2011 Before mergence, three banks were in insolvency, because they used too much

short term deposit for long term lending The State Bank of Vietnam has temporarily

provided more fund to maintain normal operation of banks After mergence, legal of

capital of bank is up to VND 10,400 billion, and total asset of VND 154,000 billion

(41)

Selling stocks to foreign banks and companies to increase owned equity

To increase owned capital, some banks has sold partly its stocks to foreign banks

Figure 39 Vietnamese banks sold stocks to foreign financial institutions

Source: Security Company of Vietcombank 2011 (19)

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