DEVELOPING STRATEGIC MANAGEMENT MODEL FOR VIETNAM DEVELOPMENT BANK VDB UNTIL 2015, STRATEGIC TASK FOR 2020

DEVELOPING STRATEGIC MANAGEMENT MODEL FOR VIETNAM DEVELOPMENT BANK (VDB) UNTIL 2015, STRATEGIC TASK FOR 2020The development bank network has 01 headquarter, 02 Transaction centers, 56 branches and representative offices in all over the country and overseasDEVELOPING AN OVERALL STRATEGY FOR VDB IN THE PERIOD 2010 2020

TABLE OF CONTENTS 1

LIST OF ABBREVIATIONS 6

LIST OF TABLE 7

LIST OF FIGURES, CHAT 8

INTRODUCTION 9

RATIONALE 9

CHAPTER I 13

THEORY OF STRATEGIC MANAGEMENT 13

1.1.OVERVIEW OF STRATEGIC MANAGEMENT 13

1.1.1 In military view: 13

1.1.2 In business view: 13

1.2.KEY DEFINITIONS OF STRATEGIC MANAGEMENT 14

1.3.ROLE OF STRATEGIC MANAGEMENT IN OPERATION (ENTERPRISE, COMPANY ETC.) 17

1.3.1 Strategic management model: 17

1.3.2 Task of strategic management: 18

1.3.3 Benefits of strategic management 1.4.CLASSIFYING THE CURRENTLY APPLIED STRATEGIC MANAGEMENT MODELS 20 1.5.APPLICATIONS OF STRATEGIC MANAGEMENT MODEL IN VIETNAM 22

CHAPTER II 24

SITUATION ANALYSIS IN VDB 24

2.1.OVERALL INTRODUCTION TO VDB 24

2.2.ORGANIZATIONAL STRUCTURE OF VDB 25

2.3.FUNCTIONS AND TASKS OF VDB 25

2.4.RESOURCES: 27

2.4.1 Fund of development bank consists of: 27

2.4.2 Human resource: 27

2.4.3 Technology and equipment: 28

2.4.4 Network scope: 28

The development bank network has 01 headquarter, 02 Transaction centers, 56 branches and representative offices in all over the country and overseas 28

2.5.OPERATION OF VDB DURING 2006-2009 29

Major activities (investment and export credits, credit guarantee, post-investment interest support and ODA etc.) 29

2.5.1 Capital mobilization: 29

2.5.2 Investment loan: 31

2.5.3 ODA: 32

2.5.4 Export credits: 33

2.5.5 Guarantee for investment credit 35

2.5.6 Post-investment subsidy 35

2.5.7 Other activities: 36

2.5.8 Financial situation of VDB 36

2.6.EVALUATION OF VDB ACTIVITIES IN 2006-2009 38

2.6.1 Achievements: 38

2.6.1.1 For the economy: 38

2.6.1.2 For VDB: 48

2.6.2 Weaknesses and causes for weaknesses (focusing on major weaknesses in VDB activities and causes for these weaknesses as the foundation for considering the relationship between the current management model and results and objectives) 54

2.6.2.1 To the economy 54

* Modest impacts on national economic growth 54

* Increased interest compensation and administrative fees funded from the State Budget 55

* The appearance of adverse impacts on market regulation, growing

conflicts between the demand for supporting policy and implementation

capacity 55

2.6.2.2 To VDB 57

2.6.2.3 Reasons for exisiting problems and limitations 60

* Inappropriateness of the VDB model 60

* Export and investment credit policies of the governement have not been issued, or no timely state guidline has been worked out, regardless of inappropriate regulations 63

* The financial scheme is improper and the state support is not timely and sufficient 67

* Ineffective executing environment 68

* Causes from VDB 70

CHAPTER III 77

DEVELOPING STRATEGIC MANAGEMENT MODEL FOR VDB 77

3.1.MAJOR BASES: 77

3.2.ABILITIES TO MEET THE VDB’S OBJECTIVES UNTIL 2015 AND STRATEGIC TASKS UNTIL 2020 77

3.3.DEVELOPING AN OVERALL STRATEGY FOR VDB IN THE PERIOD 2010-2020 78 3.3.1 Forecasting - opportunities and challenges for VDB 78

3.3.2 Develop an overall strategy for VDB during 2010-2015 and strategic task for 2020 80

3.3.2.1 Mission Statement and Major Goals: 80

*.VDB Philosophy: 80

* Goals: 80

* Specific objectives: 81

3.3.2.2 Strategic development orientation of VDB for 2010 - 2015 and strategic task for 2020 82

3.4.SOLUTIONS TO IMPLEMENT THE SET OBJECTIVES OF VDB 87

3.5.SELECTING AN EFFECTIVE STRATEGIC MANAGEMENT MODEL FOR VDB 93

CONCLUSION 96

REFERENCE 97

APPENDICES 1 98

LIST OF ABBREVIATIONS

LIST OF TABLE

Table 4: The implementation results of post-investment subsidy 36 Table 5: Financial situation of the Development Cooperation

Fund/VDB

37

LIST OF FIGURES, CHAT

Figure 2: Basic model of strategic management 18 Figure 3: Five tasks of strategic management 19

Chat 2.2: Structure of invesment credit outstanding loan 31

Chat 2.3: Disbursement structure of export credit by product 34

Chat 2.4: Disbursement structure of export credit by market 35

Chart 2.7 : Frequenies of GDP nominal value and VDB’s

disbursement

100

Chart 2.8: Regression of disbursement and GDP 103

Chat 2.9 : Average interest rate, interest rate subsidy and

managerment fees

55

Chat 2.10: Some determinants of investment credit risk 57

Chat 2.11: Percentage of bad debt in investment credit 57

Research paper: “DEVELOPING STRATEGIC MANAGEMENT MODEL FOR VIETNAM DEVELOPMENT BANK (VDB) UNTIL 2015, STRATEGIC

Though, our group finally agrees that it will be difficult to be successful in business without being equipped with knowledge from this MBA program

Strategic Management is the final subject in the MBA program It reviews all theories and practical application of subjects from the beginning of the program is a systematic way Specifically:

 Knowledge in the MBA is arranged systematically and logically, from the first to the last subject

 Business administration (in nature is Strategic Management), the key problem of the business administration process, is developed on the foundation of areas which are arranged logically, including economics, accounting, financing management, organizational behavior, accounting management, economics management, financial enterprise, financial

accounting, business statistics, negotiation, marketing management, human resource management, leadership, operational management and finally strategic management

 The practical element or the actual experience of each case/situation plays an important role Trainees can come up with various solutions in their business based on the theories obtained from the Program and the actual business situation of the enterprise

 The Strategic Management subject proves that Business Administration is highly linked to practical situation in the economy

We have chosen a specific enterprise which is the Vietnam Development bank (VDB) to understand, analyze and develop a strategic management model for this bank This choice has been our strength due to the following reasons:

- Banking is one of the “sensitive” areas and has great influence on the economy

In fact, banking has contributed significantly to the economy in recent years It accounted for 8.5% in total services and made up 4.5% of total GDP in 2008 Research of the Strategic Development Institute of the Ministry of Planning and Investment (MPI) shows that banking sector continues playing an important role

in Vietnam economy in the coming years, particularly when Vietnam is moving out of economic downturn and entering a new development cycle

- VDB is a special bank (government bank) so it requires a special strategic management model VDB was set up to serve objectives of the Government of Vietnam It has the functions and tasks in mobilizing medium and long-term capital, receiving and managing State fund for implementing the government1credit investment policy and export credit targeting at promoting investment for economic development and export (through preferential interest rate) for all types of businesses VDB has fulfilled the tasks set by the Government successfully during 2006-2009 and has made remarkable achievements However, in order to improve its administration model in the coming years and

with a development spirit, VDB wants to develop an effective strategic management model which deserves the name of a Government bank

- Our research group consists of four members in which one member is holding the management role in VDB Bearing in mind the concern to have a modern strategic management model for VDB which meets the objectives and equals to the management level of other similar banks, our group members agree to use VDB as the research object for our graduation assignment entitled: “Developing strategic management model for VDB until 2015, strategic tasks for 2020”

With regards to the research content as mentioned above and on the basis of original data provided by VDB, we use various research methods such as collecting, classifying, analyzing and comparing in undertaking this research in order to come

up with the strategic management model for VDB

With regards to the theory, we use information from the government sources such as:

- “”Strategic management: Competitive and Globalizations”, by R and Hoskinsson, R., 7th edition, Thomson Southwestern;

- “Strategic Management”, by Associate Prof Dr Lê Thế Giới, Dr Nguyễn Thanh Liêm, MA Trần Hữu Hải – Statistics Publishing House - Hà nội 2007;

- “Strategy Analysis: Concepts, Techniques, Applications” by Grant, RobertM., Contemporary 5th edition, Blackwell 2005;

- “Economics of Strategy”, Besanko, David, David Dranove, Mark Shanley and Scott Shaefer 3rd edition, John Wiley& Sons;

- “Competitive: techniques for analyzing industries and competitions” Michael Porter 1st edition, Freedom Publishing House, 1998

- Websites

We use the following information sources for in-country data

- Ministry of Planning and Investment (General of Statistics of Vietnam);

- State Bank of Vietnam;

- Research institutes in Vietnam;

- Websites

In addition to the Introduction and Conclusion, the assignment includes three chapters:

- Chapter I: Theory of Strategic management

- Chapter II: Situation analysis in VDB

- Chapter III: Develop strategic management model for VDB

CHAPTER I THEORY OF STRATEGIC MANAGEMENT

1.1 Overview of Strategic management

Nowadays, the terms “strategy” or “strategic management” or “strategic partnership” are used in many fields

The term “strategy” was firstly used in military, then used widely in politics, economy and society Scientists agree that strategic management started in the 60s

of the XX2 century We limit the scale of this research in strategy and strategic management in business3

1.1.1 In military view:

+ In Alexander era (330 BC), strategy is the skill in exploiting forces and setting up management regime

+ Basic concept: it is possible to combat the enemy, even stronger one if one is able

to lead the struggle and put the enemy in a situation which is favorable for one’s ability

+ In Quinn’s view (1980): “Strategy is the pattern or plan of integrated key objectives, policies and actions in a comprehensive and consolidated way”

2 Mintzber, H Ahsran, B., Lampel, J (1998) Strategy Safari: A guided Tour Through the Field of Strategic Management, Prentice Hall Europe

+ In Johnson and Scholes’s view: “Strategy is the long-term orientation and scope

of an organization in order to achieve the competitive advantage through the

identification of resources in a changing environment, meeting the market demand and satisfying expectations of relevant stakeholders”

+ In Mintzberg’s view4: Strategy consists of 5 P

- Plan: consistent series of intended actions;

- Pattern: consistency in behavior;

- Position: Relevance between organization and its environment;

- Perspective: Way of understanding/awareness;

- Ploy: Behaviors to enemy

1.2 Key definitions of Strategic Management

After studying the definitions as well as views of scholars and understanding the role and position of strategic management in enterprises, we think the following statement is the most fundamental and comprehensive definition of strategic management:

Strategy is the comprehensive, long-term and fundamental intention5

Strategy is the art or the skill of using stratagems in endeavors such as politics and business).6

Therefore, strategy is a combination of several skills or the art in implementing objectives set in business It is required to manage the implementation of objectives

if one wants to realize the strategic objectives Then the definition of strategic management arrives It is possible to consider the following definitions of strategic management:

4 Sđd, Strategic Management, Associate Prof Dr Lê Thế Giới et al Statistics Publishing House 2007, pp 6-7

5 Sđd, Economic – Society Development Planning Theories and practicalities Development Strategy

Strategic management is the set of management decisions and actions defining the

long-term efficiency of an enterprise7

Strategic management is the science and art in strategy in order to develop the

business orientation and objective, implementing short-term and long-term plan on the basis of available reserouces assisting organizations to achieve its long-term objectives8

Strategic management is the process of arranging flexibly strategies, operation and

business outcomes.It includes human resource, leadership, techniques and method

of handling9

It can be seen that strategic management is a process consisting of such steps as understanding, evaluating the internal and external environment (SWOT model); developing strategy; evaluating and monitoring strategy Only by following these steps, can strategic management demonstrates its role in the business operation of enterprises (even organization)

Based on these views, it is possible to come up with the following definition of strategic management:

Strategic management includes the identification of mission and key objectives of an organization; analysis of internal and external environment; use of appropriate strategies for the strengths and weaknesses; acceptance of the organizational

We think it is the most complete and comprehensive definition of strategic management This definition indicates the need to define the organization mission and specific objective (consistent series of intended actions - Plan, the first P in 5P model) Then, the analysis of internal and external environment is required (relevance between organization and its environment – Position, the second P) or

6 Sđd, Sđd, Strategic Management, Associate Prof Dr Lê Thế Giới et al Statistics Publishing House 2007,

the selection of strategy which corresponds the strengths and weaknesses with opportunities and threats (ways of understanding – Perspective, the third P) in order

to position the organization in the business environment Then appropriate actions will be taken to serve the existence and development of an organization and finally

to accept the organization structure and its control system (the consistency in behavior – Partern, the fourth P and lastly the fifth P– Ploy on handling in business)

On the basis of our presentation above, again we need to state that there are various definitions of strategic management but its content remains unchanged

5

Strategic Management Process

External environment

Internal environment

Strategic intention

Corporate strategy

Global strategy Cooperation

strategy

Integrate and

restructure

Enterprise manageme nt

Structure and control

Leadership Business Start up &

which is the 2nd step Then, two areas of the process are formed, which are “strategy development” and “strategy implementation” The implementation of “strategy development” and “strategy implementation” leads to the next step of “competition strategy” by the enterprise in order to specify steps of the process The next step is again “input” for the step 1 which involves “evaluation of internal and external factors”

1.3 Role of Strategic Management in Operation (enterprise, company etc.)

It is possible to say that an enterprise can not exist or develop if it does not have a strategy (vision) If it has a “vision” but objectives for implementing the “vision” are not developed, then the company cannot go far This confirms the role of strategic management in the “life circle” of enterprise It has an enormous effect on the entire operation of enterprise Understanding this issue, many enterprises have invested significant effort in strategic management of their enterprises in order to bring them success

To understand the role of strategic management, firstly, it is neccessary to study the basic model of strategic management Any model has to be based on the fundamental principles of the following model

1.3.1 Strategic management model:

The strategic management model in Figure 2 shows that:

- The choice of mission and major objectives by organization/enterprise;

- Analysis of external environment to identify opportunities and threats;

- Analysis of internal environment to identify strengths and weaknesses;

- Selection of strategies on the basis of seeking resources, capability and core competencies, developing these core competencies so that threats are addressed and external environment is fully exploited;

- Strategy implementation involves the design of appropriate organization structure and control system

Based on the steps of the strategic management model as analyzed above, we can see that strategic management has the following tasks:

Figure 2: Basic model of strategic management12

A

1.3.2 Task of strategic management:

Strategic management has 5 significant tasks which are closely related

Mission and purpose

Select and develop strategies

Identify resources, capabilities And core competencies)

External analysis

( Opportunities? Threats? )

Appropriate strategy , Structure ad control Design controlOrganization structure

Change strategy

Figure 3: Five tasks of strategic management7The figure indicates that each task is an important element of five integrated objectives based on the cause and consequence effect Each task not only demonstrates its position and role but also shows a close linkage to the next step “Developing strategy and mission” is the first out of five tasks This task shows that it is important to set up a “vision” and mission for a company This task demands investors to have ethics, a vision and to be ambitious for themselves and for their companies

On the basis of the first task, managers can develop goals as well as targets and implement them This is the content of the 2nd task, which is “setting up goals/targets”

“Developing strategies to achieve objectives” is the 3rd task In this task, it is important to implement strategies It is the key mission to complete the entire task

of strategic management In this task, it is compulsory to mitigate any minor mistakes and supplement timely in order to avoid the situation of going away from the set objectives of companies

to achieve objectives

Implement and manage selected strategies

Evaluate, monitor, adjust

Adjust if

required

Improve/

Change if required

“Implementing and managing chosen strategies” is the fourth task This task requires managers to use all inputs including capital, human resource, technology, information etc) to implement effectively strategies selected in earlier task This task is equally important to the third task and should not be undervalued It is important step in implementing strategic management tasks The task of

“evaluating, monitoring and adjusting” is the final step in making final decision in the strategic management model In this task, it is essential to evaluate in the most comprehensive way of the 5 strategic management tasks so as to make appropriate adjustment for the management model

1.3.3 Benefits of strategic management

 Overall benefits of strategic management

The immediate benefit of strategic management is to bring about an overall view of the development path for the organization/company Then the company can develop the most appropriate strategic management model based on the basic principles of strategy In strategic management process, “strategists” have to follow 5 tasks closely as shown in Figure 1 On that basis, companies have a full understanding for setting up and implementing tasks suitably to their actual situation

The other benefit of strategic management lies in the close and accurate implementation of strategic management principles (tasks) This helps companies in locating their position in the market, gradually adjust their tasks so as to achieve the targets and goals

 Specific benefits of strategic management

- Clearer understanding of strategic mission of organization/company

- More accurate focus on significant aspects of strategy

- Improved understanding of the rapid changing in the environment14

1.4 Classifying the currently applied strategic management models

As presented above, the world is currently using various strategic management models Every model strictly follows the basic principles/tasks of strategic

management, however, the application depends on the goals and targets of each organization/company Within the scope of this assignment, we present the most representative models

 The internal strategic management model is represented by Chandler 1962 with his work “Strategy and Structure”8.This research focuses on big companies which have new management structures to cope with development and strategic changes leading to structural changes16 This model has the strength by focusing on the structure of management in order to affect the strategy and vice versa In addition, Ansoff model should be mentioned Ansoff focuses on strategies as the “common linkage” between company operation and the market The linkage includes four parts namely market scale – products, development vector (changes implemented by companies in the market), competitive advantage and resonance17

 The strategic management of sector structural is represented by Michael Porter He researched the sector structure with five competition forces18 The core principle of this model lies in the identification of the sector attractiveness which is the base for setting up competition strategy19/20 Michael Porter highly values the sector as an uniform unit This development helped strategic management to come back to companies21

 The strategic management of enterprise resources is represented by Barney with researches on the specific frameworks to identify reserources which create competitive and sustainable advantage He proposes four criteria for evaluating resources including valuable, rare, unique and irreplaceable10 In addition, it is necessary to mention Hamel and Prakalad in companies’ resource research The two scholars introduce the concepts of “core competencies” and “strategic intention”11 The concepts of accessing the

8 Chandrer, A (1962), Strategy and Structure, Cambrige, Massachusettes MIT Press

9 Porter, ME (1980), Competitive strategy New York, Free Press

10 Barley, J.B (1991), Firm resources and sustainable competitive advantage Journal of management 17

99-120

11 Prakalad, CK , Hamel,G (1990) The core competencies of the corporation Havard Business Rewiew 68

companies’ resrouces based on “core competencies” and “strategic intention”

is an interesting approach and useful for applying in Vietnam

Though the above models vary in their approach but they share “great thought” on strategic management They are important concepts for our research and proposal of the strategic management model for VDB in the coming chapters

1.5 Applications of Strategic Management Model in Vietnam

We faced with difficulty in presenting clearly the possible strategic management models that can be applied in Vietnam

As we know, Vietnam has an emerging ecnomy which has incomplete feature in the economic regime to market factors In such context, it is difficult to introduce a standard strategic management model for Vietnam

However, we agree that considering the current development situation of Vietnam and the special feature of Vietnamese companies/enterprises, the most feasible and applicable strategic management model is the mix strategic management model According to the studies of the General Statistic Office of Vietnam, over 85% of Vietnamese companies are small and medium enterprises (SMEs) by April 2009 The choice of any strategic management model will always be applied for these types of enterprises

In fact, we realize there are several effective strategic management models by Vietnamese enterprises These models have been researched, developed and applied successfully The strategic management models of two joint stock commercial Vietnamese banks can be named, namely Asia Commercial Bank and Saigon Commercial Bank (STB) These banks use a modern strategic management model with a target to become the leading financial corporation and banks in Vietnam in

2020 They pilot the idea of making members of the Board of Director to be independent members and do not own shares in these banks The purpose of using independent members to participate in the bank management is to increase the transparency and efficiency of the bank and gradually improve the strategic management model in these banks

The above example illustrates our group’s view that the identification of a strategic management model for VDB does not mean that VDB is not operating effectively

It aims at a further goal that we are trying objectively to find out the most effective strategic management model for VDB, a government bank which provides investment and export credit for the economy, setting the standard and reputation in the region and the world in banking operation and enterprise community

CHAPTER II SITUATION ANALYSIS IN VDB

2.1 Overall introduction to VDB

On 19/5/2006, the Prime Minister signed the Decision No 108/2006/QĐ-TTg on the estbablishment of the Vietnam Development bank – VDB which initially was the Vietnam Development Support Fund VDB has the function and task to mobilize medium and long-term capital, receive and manage fund sources of the State for implementing investment credit policies and export credit Recently, VDB has been assigned by the Prime Minister to be in charge of other tasks such as investor of the Hanoi-Hai Phong highway, provision of guarantee for the enterprises in getting loan from commercial banks

VDB network officially came into operation nationwide since 01/7/2006 in accordance with the Charter on organization and operation approved by the Prime Minister in Decision No 110/2006/QĐ-TTg on 19/5/2006 Its mechanism is structured from the central level to provinces, cities attached to the Central level management VDB focuses on supporting sectors, and important economic programs of the country and regions and disadvantaged areas

In addition, VDB is non-profit bank and its compulsory reserve rate is 0% It is not required to take part in saving insuring deposits; is guaranteed by the Government in the payment; is exempted from tax and contribution to the state budget in accordance with the law

VDB has a legal status, registered capital, its own seal and account in the State bank

of Vietnam (SBV), State Treasury of Vietnam (STV), local and foreign commercial banks It participates in the payment network with other banks and provide payment services in accorance with legal regulation

VDB has an operation duration of 99 years since its establishment decision issued

by the Prime Minister in the Decision No 108/2006/QĐ-TTg on 19 May 2006

2.2 Organizational Structure of VDB

 Description of VDB organizational structure

VDB organizational structure includes:

- Board of Director (BOD) has 06 members including 03 permanent members who are Chairman, General Director and Inspection Head and 03 semi-permanent members who are Vice ministers of Ministry of Planning and Investment (MPI), Ministry of Finance (MOF), State Bank of Vietnam (SBV).The Secretary Board to the BOD includes 03 permanent staff and 03 semi-permanet members who are department leaders from MPI, MOF and SBV

- The Board of Supervisory includes 06 members

- The Board of Management include General Director and 6 Deputy General Directors;

The management mechanism includes headquarter in Hanoi; transaction centre, branches, representative offices in and outside the country

2.3 Functions and Tasks of VDB

VDB undertakes the following work:

Functions and tasks of VDB:

- Mobilize, receive fund of local and international organizations to implement credit develoment investment and export credit of the State as regulated by the Government

- Implement investment credit policy including investment loan, post-investment support and investment credit guarantee

- Implement export credit policy including export loan (providing loan to importers and exporters); export credit guarantee; tender guarantee and export contract implementation guarantee

- Guarantee for companies getting loan from commercial banks

- Manage Official Development Aid (ODA) which is re-loaned by the Government; provide trust service, loan for invesment and debt collection from local and international organizations through authorized contracts between VDA and other trust organizations

- Trust other financial, credit organizations to implement credit operations by VDB

- Provide payment services for clients and participate in local and international payment system serving operations of a development bank as regulated by laws

- Perform international cooperation task in investment and export credit

- Perform other tasks as assigned by the Government

- Accept trust in banking operation and banking and finnancial relevant sectors as regulated by laws; perform other operations as stipulated by the Prime Minister

2.4 Resources:

2.4.1 Fund of development bank consists of:

- Registered capital of development bank;

- Annually allocated state budget fund for investment and export credits;

- ODA assigned by the Government for providing re-loan;

- Issuance of bond, stocks and saving certificates;

- Receive trust deposits of local and international organizations;

- Getting loans from Post Service Saving Company, Social Insurance Fund and local and international credit organizations;

- Volunteer contributed and non-returnable fund of individuals, economic, financial, credit and social organizations, associations, local and international organizations;

- Receive trusted capital, investment fund, debt collected from local and international organizations through trust contract between development bank and trust organizations

- Other fund sources as regulated by law

2.4.2 Human resource:

By 31/03/2009, VDB has 3,000 staff of which male staff accounts for 51.2%, female staff makes up 49.8%; 2,000 staff completed bachelor education (accounting 86.2%); 32% trained in finance, 26% staff trained in financial accounting; 57% staff completed formal and long-term training; 42% staff has management qualification in state management and recognized as experts and senior experts; 8.8% staff has high

level political theory training; 3.8% staff has foreign language competency at higher education; 63.1% staff has foreign language of level B upwards

With regards to the age, 34% staff is under 30 years old; 34.5% staff ranges 30-40 years old; making up 22.7% staff is between 40-50 years old; and 9.3% staff is over

50 years old

- VDB has held over 100 training courses/classes during the past 3 years for 5,000 staff on professional areas with a focus on banking knowledge and profession, particularly on credit assessment and analysis and overview of banking management etc

2.4.3 Technology and equipment:

- All branches have concretized offices Many branches have modern offices and been equiped with working conditions such as cars, security methods A number of branches have offices in good locations which are easy for market-oriented operation

- The sector has had new offices serving conferences, training and team activities, bringing about activeness for the banking sector in undertaking its activities and opening up new relationships with outside partners

- Though the internet and computer network has some limitations but has made significant progress in compared with the 2000-2005 period; It has been received more investment and is capable of being installed heavy software with high technology standard

2.4.4 Network scope:

The development bank network has 01 headquarter, 02 Transaction centers, 56 branches and representative offices in all over the country and overseas

2.5 Operation of VDB during 2006-2009

Overall:

VDB operates based on the anual plan set by the Prime Minister During the past years, the plan assigned has been significantly sizeable targetting at maximum support for development and export

In addition to regular task, VDB also performs other tasks assigned by the Prime Minister such as managing and allocating payment for components of Son La hydropower plant including resettlement, plant construction and road construction VDB, since 2008, has been investing in the Hanoi-Haiphong Highway (total invest among 1.5 billion USD) and construction of Tan Vu-Lach Huyen island in Haiphong City VDB, since 2009, has been given additional task of guarantee for enterprises to borrow fund from commercial banks and providing fund for enterprises for salary payment, social insurance contribution and severance allowance

VDB implements activites at the same time in the whole system with an aim to fulfil the objectives and exceed the plan set by the Prime Minister On the basis of the Government decrees and decisions of the Prime Minister, VDB regulates and guides the implementation of technical processes and professions through regulation

of the Board of Management, Professional Handbook, rules and guidelines of the General Director

Major activities (investment and export credits, credit guarantee, post-investment interest support and ODA etc.)

Table 1: Local mobilized capital

Unit: Billion dong

Branches, transaction centres and headquarter are mobilizing capital from the market under the interest rate framework regulated by VDB and in line with the government bond interest rate announced by the Ministry of Finance in each period During the

Chat 2.1: Annual mobilized revenues

past time, VDB has mainly mobilized capital from government bond issuance and loan of tranditional parters such as post service saving, social insurance, state treasury; and other short-term and small-scale sources By 31/12/2008, the capital mobilized from government bond accounted for 72.2%; 6.7% from social insurance; 4.2% from post office saving; 2% of foreign payment fund; 2.9% from state treasury and 12% from other sources

2.5.2 Investment loan:

By the end of quarter 1 in 2009, VDB has provided fund for over 3,900 projects with the credit capital of almost 128,800 billion dong including approximate 360 newly signed contract credits Approximate 26,800 billion dong was loaned during 2006-

2009, making up about 50% of total investment in these projects Among projects managed by VDB, there are 130 projects belonging to Group A/Key Government Group with the loan of 26% in the total project investment; accounting for 51% of approved fund for projects managed by VDB The debt balance of group A projects accounts for 45.3% of total local debt balance by VDB

During 2006-2008 period, VDB witnessed a skyrocket increase in investment credit (local fund) with an average outstanding debt of 20%/year, higher than ODA

oustanding growth level (an average of 9.14%/year) Local investment credit balance was 1.5 times higher compared with the inital operation of VDB

VDB has provided loan for implementing economic programs of the government during the past 3 years such as Canal concretizaton program valued 3,000 billion dong; cannel improvement for flood prevention program, infrastructure improvement for Mekong River Delta A budget of 1,700 billion dong has been disbursed in the first phase and approximate 750 will be disbursed in the second phase

For offshore fishing program: VDB has provided loan for 960 ships from

01/7/1997 till now, with a debt balance of over 730 billion dong

For infrastructure projects of the Ministry of Transportation: To implement the

direction of the Prime Minister of providing loan for transportation works and key transportation projects, VDB has provided loan with a value of over 4,000 billion

dong for these works and projects

2.5.3 ODA:

During three years of implementing ODA service (from 01/7/2006 to31/12/2008), VDB has been managing loan for approximate 380 projects with the total committed loan in the financing agreement of $7.1 billion, witness an increase of over 120 projects with $1.15 billion in compared with the intial period of establishment Projects are being carried out in 58 provinces and cities nationwide, focusing on Hochiminh and Hanoi Branches record a big loan including Hải Dương, Cần Thơ, Đà Nẵng etc

Table 2: ODA loan in VDB

Unit: Billion dong

2003 2004 2005 2006 2007 2008 Loan 4,200 6,700 7,400 4,900 8,700 7,800

Deb collection 800 1,500 1,800 2,000 2,300 3,500

Deb balance 31,000 36,500 42,000 44,800 51,000 55,000

Source: VDB

The revolving funds from trusted capital or ODA capital include Investment fund

for Agricultural species (8.4 million USD); Ferry Fund (187 billion VND); Private Sector Development Program (26.5 billion VND); SME Supporting Program (7 million EUR); World Bank Revolving Fund for Urban Water Supply

(10 million USD); Finland Water Supply Project (5.5 million EUR); AFD Water

Supply and Technical Assistance Project (32 million EUR); Rural Energy Project II etc

2.5.4 Export credits:

In the last 3 years, VDB has made considerable efforts to achieve the export credit target set by the Prime Minister In 2007, VDB completed and exceeded 15% the average credit export balance assigned by the Prime Minister In 2008, VDB achieved 128% of the assigned export credit

Table 3: Export credit results

mainly on agriculture-forestry-aquatic products to industrial products VDB provided a total 6,000 billion VND credit for export of catfish, a major export product of Mekong River Delta

To date, VDB has provided credit for export to 43 markets, in which the EU market

is the largest growing market (40.8%) This a growing and attractive market for garment and textiles, seafood, crude oil, footware etc In the mean time, exports to the US market also is increasing sharply since the signing of the Vietnam-US Trade Agreement (In 2006: 820 billion VND, accounting for 10% of the total export credit; in 2007: over 1,000 billion VND; in 2008: 3,500 billion VND, accounting for nearly 13% of export credit)

The majority of enterprises receiving export credit from VDB are state-owned enterprises, accounting for 35% of total export credit Many of these state-owned enterprises are Corporations obtaining credit according to government agreements Limited liability companies and joint stock companies account for 24.8% and 34.8% of total export credit in 2008, respectively

2.5.5 Guarantee for investment credit

During 6 years of implementation, VDB’s provision of guarantee for enterprises to get loans from commercial banks has been limited Only 05 projects have been provided guarantee for getting investment credit from commercial banks with total credit of 32,5 billion VND; focusing on producing and processing agricultural products Until now, all these projects have completed paying debt to lending banks and completed guarantee contract with VDB

2.5.6 Post-investment subsidy

- In the 2006-2008 period, until 31/12/2008 VDB has signed 370 contracts to provide post-investment subsidy, with the total amount of subsidy of 1,100 billion VND (on average each project received 3 billion VND) From 2000 to 31/12/2008, VDB has provided subsidy to 2,840 projects, with the total subsidy of up to 3,600 billion VND The actual reimbursed subsidy during the 2006-2008 period was approximately 690 billion VND

- The granting of post-investment interest subsidy has grown dramatically over the years In the 2006-2008 period, the number of projects granted post-investment interest subsidy has increased by 5% per year; the registered subsidy amount has grown by 29% per year and the actual reimbursed amount has risen by 40% per

total revenues, higher than the 63% of the 2001-2005 period Turnover from interest

on loans in 2006-2008 accounted for 44% of annual total turnover (in 2003: 44%; in 2004: 46%; in 2005: 46%; in 2006: 42%; in 2007: 44%; in 2008: 45%)

Total costs of VDB in 2006-2008 increased on average by 30% per year, lower than the average growth of 45.3% in total costs in 2001-2005 The average costs for mobilizing funds accounted for 83% of annual costs (higher than the 81.3% of 2000-2005)

Table 5: Financial situation of the Development Cooperation Fund/VDB

Interest from providing

loans and deposits at

Banking operation costs

(including paying interest

on loan multiplied by outstanding investment credit of the government (domestic capital) Funding for operational cost is identified as 25% of actual profit In 2006-

2008, on average funding from Government budget accounted for 25% of total turnover, lower than the 39% of 2003-2005

ODA management fees was rather stable, accounting for 2% of annual turnover and 32% of annual administrative costs of VDB

2.6 Evaluation of VDB activities in 2006-2009

2.6.1 Achievements:

2.6.1.1 For the economy:

- Mobilizing funds to meet the demand of economic development:

Capital plays a crucial role in a growing economy In Vietnam, capital has been one of the most important factors in economic growth over the past years During the 2001-

2005 period, total investment capital accounted for 37.5% GDP This figure for the

2000-2005 period and the 2006-2008 period was 37.2% and 41% of GDP, respectively According to many experts, investment capital contributes up to 57.5% of GDP growth

in Vietnam in the past years

VDB plays a more and more important role in mobilizing funds in recent years Through mobilizing funds and providing capital for development programs, especially key development programs of the government, VDB contributes significantly to the national economic development In general, the investment credit capital reimbursed by VDB during the 2006-2008 period, 4.2% of total investment capital and 1.8% of GDP Credit granted from domestic fund accounted for 2.8% of total investment, equivalent to 1.15% of GDP; ODA accounted for 1.4% of total investment, equivalent to 0.5% GDP

The loans provided by VDB was relatively large, accounting for 12% of credit fund

of the whole market in 2006-2008 (Table 2.3) and 10% of GDP, in which annual newly-granted credit accounts for 9.6% of newly-granted credit of the whole market, equivalent to 1.7% of GDP

Chat 2.5: Structure of investment capital

Investment from State Budget (18,3%) Investment by State-owned enterprises (15,2%)

Investment of residents and private investment(37,7%) FDI (24,6%)

VDB investment credit from domestic funding (2,8%) ODA capital managed by VDB (1,4%)

Table 6: Credit structure in 2001-2008

Total outstanding debt /GDP

Additional outstandin

g debt in the total market/

GDP

VDB outstanding debt/G

DP

VDB addition

al outstanding debt /GDP

VDB outstanding debt/Total outstanding debt in the market

Additional outstandin

g debt/Additional outstandin

g debt in the total market