Improve effectiveness of capital raising in my dinh trading room thang long branch, GP bank

Chapter 2: Real situation of capital raising and its effectiveness in My Dinh tradingroom-Thang Long branch-PG bank 2.1.. The global financial depression and the merger and acquisition t

Lastly, I offer my heartiest gratitude to my parents and all of those who supported

me in any respect during the completion of this thesis

Ngo Duc Tiep

3 Objectives of the research

4 Methodology and the Research design

5 Scope and limitation

Chapter 1: Overview of capital raising and its effective at commercial banks 1.1 Some introductions about commercial banks

1.1.1 The concept of commercial banks

1.1.2 Functions of commercial banks in the economy

1.1.2.1 Accepting deposits function

1.1.2.2. Grant of loans and advances

1.1.2.3 Providing advice for investors

1.1.3 Roles of commercial banks in the economy

1.1.2.1.Financing for businesses

1.1.2.2.Providing between linkage between Vietnamese economy and global

1.2.1 The definition of bank capital

1.2.2 Factors affecting effectiveness of capital raising

1.2.2.1 Quality of information resources

1.2.2.2 Level of modernization of banking technology

1.2.2.3 Capacity and ability of dealing officers

Chapter 2: Real situation of capital raising and its effectiveness in My Dinh trading

room-Thang Long branch-PG bank

2.1 The general overview of GP bank

2.1.1 History and development

2.1.2 GP bank’s organization structure and its branches

2.2 Overview of business operations of My Dinh trading room-Thang long branch 2.2.1 Types of of business product

3.1 Orientations to improve capital raising

3.2 Solutions to enhance effectiveness of capital raising

3.2.1 Improving the quality of human resources

3.2.2 Building customer strategies

3.2.3 Deposit scoring and rating clients in an active way

CONCLUSION

REFERENCES

a relatively higher level of economic growth rate to almost the rest of the world,7.3%/year on average To be able to achieve the goals of Vietnam economy’sentities in the coming years, there exists the demand for a huge capital

Moreover, the global financial depression 2009-2010 is hurting the worldeconomy most seriously since the World War II The Financial sector is nowfacing much changes and challenges, especially the merger and acquisition offinancial institutions in the world The crisis in real estate leads to the bankrupt ofmany giant banks in the world, such as: Lehman Brothers, Washington Mutual’s,and Fannie Mae, Freddie Mac, Chiffon Bank, Colonial Bank… The failure of the

US financial bailout package has had effects not only on American, Europeanfinancial market but also in Asia and the whole world While Financial Institutionshave faced difficulties over the recent period for a dozen of reasons, the majorcause of serious banking problems continues to be directly related to lax creditstandard for borrowers and counterparties, poor portfolio risk management…

The global financial depression and the merger and acquisition trend have putVietnam’s economy and financial market under pressure, which require newchanges to overcome such difficulties, for examples: the modernization of banksystem’s infrastructure, credit risk management, and human resource training…For My dinh trading room, GP bank – Thang Long Branch, raising capitalrepresent the heart of the banking industry, capital are the dominant asset whichgenerate the largest share of operating income and represent the Bank’s greatestrisk exposure Departments joining in the credit/lending procedure as well as thewhole bank have paid such a properly giant attention and effort to improve theloan quality and strengthening the capital management activities of GP bank

To ensure that the using of capital is safe, effective and sustainable, andgradually integrated with the internationally standard process of supervision andmanagement, GP bank has developed and applied the internal capital grading andrating system, which is particularly the system of rating borrowers However, thisranking system still contains many shortcomings, which need to be modifiedadequately to meet the requirements of credit risk management in the currentconditions as well as ones in the future

Stemming from the above requirements, thesis research has gone into theproject

“ Improve effectiveness of capital raising in My dinh room Thang Long branch, GP bank ”

trading-2 Objective

The research focuses on the following objectives:

- To gain a full view on capital raising or using capital rasing activities: thefeatures, importance, operation…

- To analyze the specific situation and shortcomings capital raising or usingcapital rasing activities activities in My Dinh trading room, Thang long branch-

4 Scope and limitation

- Objects of the project: the current situation of raising capital in My Dinh Tradingroom

- Scope of the project: the whole range of system of Trading on the basis ofreported data from 2008 to December 2010

5 Structure

The thesis is flown through following structure:

- Introduction

- Chapter 1: Overview of capital raising and its effective at commercial banks

- Chapter 2 Real situation of capital raising and its effectiveness in My Dinh trading room-Thang Long branch-PG bank

- Chapter 3: Solutions to enhance effectiveness capital raising in My Dinh tradingroom-Thang Long branch-PG bank

- Conclusion

Chapter 1 Overview of capital raising and its effective at

commercial banks1.1 Some introductions about commercial banks

1.1.1 The concept of commercial banks

A bank is an institution that provides financial services to consumers,businesses, and governments One major type of bank is the commercial bank,which has fewer restrictions on its services than other types of banks Acommercial bank is a financial intermediary which collects credit from lenders inthe form of deposits and lends in the form of loans Commercial banks get profit

by taking deposits from customers, for which they typically pay a relatively lowrate of interest, and lending the deposits to borrowers at a higher rate of interest.Commercial banks hold deposits for individuals and businesses in the form ofcheckings and savings accounts and certificates of deposit of varying maturitieswhile a commercial bank issues loans in the form of personal and business loans

as well as mortgages

From the above concepts we can draw characteristics of commercial banks :Commercial banks run for profits Indeed, Commercial banks are operated withthe objective of making a profit Their fee structure and interest rate is designedwith the intention of making money for owners and shareholders Thischaracteristic of commercial banks contrasts with the primary function of creditunions, which are nonprofit community institutions that help individuals andbusinesses manage their money Commercial banks make money by chargingclients who use their services and borrow their funds Credit unions charge forbank accounts and loans as well, but they charge less because their fee structure isdesigned to cover their costs, rather than also making a profit

Secondly, commercial banks are privately owned Commercial banks areowned by private individuals or collections of private individuals acting as

applicable laws, but they are not owned by the government Except under unusualcircumstances such as the 2008 financial bailout, the private individuals who runcommercial banks are responsible for major policy decisions Unlike credit unions,where depositors automatically become members and stakeholders by joining and making deposits, shareholders in commercial banks must invest money specially

in ownership by purchasing stock

Lastly, commercial banks are primarily interested in working busineses.Commercial banks sometimes offer products and services to individuals, but theirprimary interest is in working with businesses; in fact, commercial banks are alsosometimes known as "business banks." Banking services offered to individuals aresometimes referred to as "retail banking," because they are often small scaletransactions Business accounts tend to involve larger sums of money, and the feesand profits that commercial banks reap from them tend to be greater

1.1.2 Functions of commercial banks in the economy

Commercial banks are responsible for adding customer deposits in a safe andlending the proceeds to worthy commercial, industrial, governmental andnonprofit institutions Commercial banks also provide market making activities inmunicipal, government and corporate bonds Banks provide consulting andadvisory services to customers as well as safekeeping and trust services

1.1.2.1 Accepting deposits function

Commercial banks provide important services as financial intermediaries.Commercial banks mobilise deposits from customers seeking safe, liquid, secureinvestment opportunities and they find it convenient to deposit the amounts withbanks Depending on the nature deposits, funds deposited with bank also earninterest Thus, deposits with the bank grow along with the interest earned If therate of interest is higher, public are motivated to deposit more funds with thebank There is also safety of funds deposited with the bank

1.1.2.2. Grant of loans and advances

The second important function of a commercial bank is to grant loans andadvances Such loans and advances are given to members of the public and to thebusiness community at a higher rate of interest than allowed by banks on variousdeposit accounts The rate of interest charged on loans and advanced variesdepending upon the purpose, period and the mode of repayment The differencebetween the rate of interest allowed on deposits and the rate charged on the loans

is the main source of a bank ’ s income

in lumpsum or in instalments

b) Advances

An advance is a credit facility provided by the bank to its customers It differsfrom loan in the sense that loans may be granted for longer period, but advancesare normally granted for a short period of time Further the purpose of grantingadvances is to meet the day to day requirements of business The rate of interestcharged on advances varies from bank to bank Interest is charged only on theamount withdrawn and not on the sanctioned amount

1.1.2.3 Providing advice for investors

Commercial banks provide investment advice for investors Investors can beguided to mutual funds or direct investment by bank professionals Bankingspecialists can invest in stocks, bonds, preferred stocks and futures The bank canhold all investment securities as custodian as well as offer safety deposit boxes,

provide letters of credit for investment opportunities, and act as trustee for willsand investment fund.

1.1.3 Roles of commercial banks in the economy

Market economy has always contained competitive factors, if businesseswant to dominate the market to improve their competitive position, they mustconstantly improve quality and scale of their businesses To do so, the mostefficient way is taking advantages of loans from banks Thus, a commercial bankplays important roles in the economy

1.1.2.1.Financing for businesses

Bank is a tool for business to satisfy capital requirements for operation andproduction Especially when the internal accumulation of capital of theseenterprises is limited It is very difficult to attract capital from capital markets forsmall-scale enterprises, in those cases, capital from banks is even more importantfor the survival and development of these enterprises Therefore, banks are one ofthe channels to satisfy the financing needs of enterprises to ensure businessoperations are frequent, continuous, or meet the requirements of innovatingequipment; expanding scale production

1.1.2.2.Providing between linkage between Vietnamese economy and globaleconomy

In transactions in International Trade, actual money does not usually changehands Nowadays, thanks to commercial banks, merchants don’t have to carry alarge amount of money to buy goods in other country and instead of that, theyonly consign money on a domestic commercial bank, then using internationalnon-cash payment instruments of commercial banks such as letter of credit ( L\C ),bill of exchange, promisorry note,…to facilitate the payment in InternationalTrade Their partners will get money quickly and secured

1.1.2.3.Help to enhance efficiency of capital use, further supporting economicdevelopment

When commercial banks grant loans to businesses, they require enterpriseshave plans and busineses projects that are feasible and economically efficient.Enterprises, for themselves, also need to calculate the economic efficiency thatthey have a profit and repay the principal and interests to the bank At the sametime, banks also regularly inspect and supervise the use of enterprises' capital toensure those funds are used for proper, effective and profitable purposes Byweeding out risky borrowers, commercial banks lessen the risk of financial losses.

As a result, loans that mature without any problems generate a larger pool of fundsfor the bank to lend, further supporting economic development

1.2 Some introductions about capital and capital raising process in business transactions of commercial bank

1.2.1 The definition of bank capital

Bank capital is regarded as the difference between the value of a bank's assetsand its liabilities The bank capital represents the net worth of the bank or its value

to investors The asset portion of a bank’s capital includes cash, govermentssecurities and interstearning loans like mortages letters of credit and inter-bankloans The liabilities section of a bank's capital includes loan-loss reserves and anydebt it Bank capital includes : Equity, Long-term debt, Reserves

Equity is ownership interest in a corporation in the form of common stock orpreffered stock.It also refers to total assets minus total liabilities, in which case it

is also refered to as shareholder ’s equity or networth or book value

Long-term debt is a loan that an organization musr repay after a year or more

A company may sign a long-term debt agreement if senior leaders believe thatretained earnings, or interal funds, are insufficient to meet short-term needs such

as vendor payments, salaries as well as administrative and technological costs An investment banker usually helps corporate top executives make long-term debtdecision based on the firm's financial robustness and economic conditions

Reserves are funds set aside for day to day operations or meeting emergencyliquidity requirements Reserves include provision for loan losses (PLL), reservefor loan losses, capital reserve.

1.2.2 Factors affecting effectiveness of capital raising

1.2.2.1 Quality of information resources

These are factors that affect information collected by dealing officers Whengathering information, dealing officers face many difficulties from the businessbecause for business enterprises, the problem of information security is of primaryimportance They do not want to disclose much information about competitionwith other businesses or confidential information about the know-how of theproduction Therefore, the documents they provide to banks are not really accurateand complete This is also a reason for the difficulties in assessing and classifyingenterprises by dealing officers

Therefore, such a clearly defined policy about publishing information of bank’sactivites will facilitate dealing officers to collect information easily and moreaccurately, improving the quality of information sources that utilize efficiency ofcapital raising work

1.2.2.2 Level of modernization of banking technology

Clearly, the level of modernization of technologies and standards decides thequality of capital raising effectiveness The quality of capital raising cannot beeffective when the work is still carried out manually, depending on the subjectiveevaluation by dealing officers When the process is conducted according to thescoring software, the result will be much better When the automatic scoringsoftware is used, it will be limited to subjective errors made by staff, shorteningthe time of scoring, thus enhancing the quality of this work

1.2.2.3 Capacity and ability of dealing officers

Dealing officers are the persons who directly carry out the steps of capitalraising process, from gathering information, evaluating information to the

analyzing and scoring Thus, the capacity and ability of dealing officers are thefactors directly affecting the quality of this work If dealing officers have firmunderstanding of the financial as well as non-financial criteria to accurate evaluateand consider the reports of the business, and experience in analyzing andconsidering, then the ranking results will be very reliable However, these qualitiesfinancial as well as non-financial criteria to accurately evaluate and consider thereports of the business, and experience in analyzing and considering, then theranking results will be very reliable Credit officers are required not only firmexpertise but also professional ethics are also very important issues In manybanks, the regulations in which credit officers do not receive commissions forclients are stemmed from the fear of professional ethics issues

1.2.2.4 Changes in structure, procedures and policies

To apply the capital raising rating for business clients, banks need to build acapital raising scoring system: the capital raising scoring process, the system ofindicators used to score, and how to score the criteria must be consistent withpractices and regulations promulgated by the Government A system of transparentpolicy mechanisms will help synchronize the work of capital raising to be widelyand uniformly applicable

Chapter 2 Real situation of capital raising and its effectiveness

in My Dinh trading room-Thang Long branch-PG bank.

2.1 The general overview of GP bank

2.1.1 History and development

Name: Global Petrol Bank (GP bank)

- Global Petrol Bank (GP bank), rooted from Ninh Binh rural commercialbank, was formally transferred from rural bank to urban one in 07/11/2005 At thattime, GP bank had only 10 staffs, poor infrastructure, and simple products

- Nevertheless, with the effort and ambition, GP bank has developed quicklyits branches as well as staff GP bank now has over 1000 staffs and 67 branches inmostly provinces and cities such as: Ha Noi, Ho Chi Minh City, Ninh Binh, HaiPhong, Vung Tau, Da Nang…

- Especially, it is 2007 that marked the sharp development of GP bank Itschartered capital was increased to 1.000.000.000.000 VND (1000 billion VND),its profit was 101 billion VND, and ROE was 19.44 %

- 11/01/2010, GP bank announced that its chartered capital gained 2000billion VND

- 11/8/2010, its chartered capital increased to 3018 billion VND

- As of 31/12/2010 the GP bank gained lots of achievements:

+ The total amount of GP bank’s asset was 19,000 billion VND,

+ Its equity was 71% higher than that in late 2009,

+ Profit after tax was 8 times as high as that in the same period of last year

2.1.2 GP bank’s organization structure and its branches

a) Board of Management

President of BOM

Chart 1: Board of management (BOM).

b) Executive Board

Chart 2: Excutive Board of GP bank

c) Department Organizational structure

1 Financial accounting department

2 Board of management department

3 CEO department

4 Administrative office

5 PR department

6 Human resources management and training department

7 Internal Accountant department

12 Foreign exchange department.

13 Domestic payment department

14 Credit management department

15 Legal department

16 Investment department

2.2 Overview of business operations of My Dinh trading room-Thang long branch

2.2.1 Types of of business product

a Personal banking services: checking account, saving account, forexremittance (domestic money transfer, WU transfer), lending products (forbuying car, house, consumption…)

b Corporate banking: checking account, domestic payment, forex products,warrantees services, lending products

c Investment banking: financial consulting service, investment authority

In general, My Dinh trading room-Thang long branch has witnessed a significantdevelopment in recent years: becoming the trading room gaining revenues greaterthan expenditures, working staff are paid stably (coefficient of wages in 2010 was1:52); reducing the delinquency rates of 10% to below 1% (in 2010 the bad debtratio over the total outstanding loans was only 0.7%); business results are higherthan the previous one, and receiving regularly high award in the system of GPbank

2.2.2 Capital mobilization

Over time, raising capital has always been considered a key task to ensure the

ability of balancing capital requirements to meet business expansion and tosuccessfully implement the targets assigned GP bank

With various and attractive forms of raising capital, and positive, proactive andtimely measures, capital resources of the branch has relatively high growth.However, the growth rate of funds mobilized is lower than the growth rate of bank

The explanation for this is because in recent years, capital growth has mainlyrelied on the compensation for site clearance in the area When the compensationmoved to the bank or when people received and deposited the compensation intothe branch, it will make funds of the branch soared, especially for large projects.However, for this source of capital, after only a short period of time, peoplegradually take out for shopping, building and repairing houses, leading to a verylarge variation between months

The mobilization of capital of Thang Long branch over the period 2008- 2010 isshown in Table 2.1

Table 2.1 Capital structure of GP branch, period 2008-2010

Table 2.2 Capital structure of My Dinh trading –room period 2008-2010

Item Revenue (billion)

Domestic deposit account 69,690

In terms of structure, deposit funds from households and individuals accounts forover 83% of total capital This factor has made the relatively high stability of