SOUTH EAST ASIA BANK RETAIL BANKING STRATEGY IN PERIOD 2015 2020

Study on the theoretical basis of banking activities, understand thoroughly retail operations of commercial banks Base on study and analysis of practical activities of SeABank, to point out strengths, weaknesses in its operation to be the foundation for putting forth appropriate solutions Propose new strategy: Retail strategy and implementation solutions, recommendations to regulators and for the bank to run business sustainably. REAL SITUATION SEABANK

SOUTH EAST ASIA BANK – RETAIL BANKING

STRATEGY IN PERIOD 2015-2020

INTRODUCTION

1 The necessity of the topic

The great majority is of the opinion that enterprises benefit from favorable conditions in the course of international economic integration And yet it is practically until the US - originated global crisis came about What is notable here is not that people were unconscious of the challenges in the process of economic integration but it is that these challenges were not deliberated appropriately

Vietnam’s accession to WTO in general and to the global Finance – banking market in particular has leaded to significant evolvements The economic growth was of considerably high rate People’s living standards were gradually improved Banking system became more dynamic and competitive All economic sectors, foreign economic institution had opportunities to participate more deeply into all sectors of the economy and contribute more

to the economic development in accordantly with Government’s policies Nonetheless it also challenged local economic organizations

The ongoing economic crisis started in the end of 2007 in the US real estate market So far, more than 40 banks in USA went bankrupt, merged The new government of President Barack Obama launched the so called “Great Reform” for the financial and banking system in order to restrict the repetition in the future It can be said that this is the biggest ever reform in USA since 1930 Financial institutions themselves have to rebuild their strategies to be in being and developed

Though being influenced by the global economic crisis, yet it must be apprehended that the impacts to Vietnam banking system were not as cumbersome as gauged, isn’t it the banking system in Vietnam is better that that of USA and Europe? The answer should be reserved for regulators, policy makers and local banks in Vietnam Be that as it may, the good news

is that commercial banks in Vietnam began to build, rebuild their visions and strategies for existence and better development in the period of fierce competition and crisis

Being one of the rather old in commercial Joint stock banks in Vietnam, Southeast Asia Joint stock bank (SEABank) has achieved significant results over the past years Year 2008 flagged an important milestone: The leading bank in French, Societe Generale became strategic shareholder with the stake

of 20% (the highest rate currently applicable for foreign financial institutions) With its international expertise, Societe Generale was expected

to bring in a new gust of wind in management, administration and business for SeABank

Through study and research, we remarked that though SeABank has reached some substantial achievements, nevertheless, impacts from the crisis as well

as difficulties in financial – money market recently has revealed some certain shortcomings, particularly in defining long term strategy With our cognition,

we believe that it is essential to build up and orient a new strategy for SeABank That was the premise to found “Retail strategy of Southeast Asia Commercial joint stock bank in period 2015-2020”

2 The purpose of the capstone

- Study on the theoretical basis of banking activities, understand thoroughly retail operations of commercial banks

- Base on study and analysis of practical activities of SeABank, to point out strengths, weaknesses in its operation to be the foundation for putting forth appropriate solutions

- Propose new strategy: Retail strategy and implementation solutions, recommendations to regulators and for the bank to run business sustainably

3 Analysis object and range

3.1 Objective

Southeast Asia Commercial Joint stock bank (SeABank), Head Office address at 16 Lang Ha, Ba Dinh, Hanoi and its branches nationwide

3.2 Range

The research focuses mainly on retail business activities of the bank, the topic does not address itself to analysis on investment, equity investment, business of gold or immovable properties…

4 Methodology

The topic was analyzed both quantitatively and qualitatively all retail operations of SeABank, the research used the data in macroscopic as well as forecast of relating institutions: The World Bank, The International Monetary Fund, Asia Development Bank, The State Bank of Vietnam, the local and foreign specialized banking research, financial statement of local commercial joint stock banks

5 Limits of the topic

The retail banking strategy elaboration was rather brief, information relating to the dimensions activities of competitors still restricted Some information was not last updated

6 Structure of the topic

Apart from the beginning, conclusion and reference index, the topic comprises of 3 main parts:

Chapter 1 Theoretical basis of activities of commercial banks

Chapter 2 Reality of Southeast Asia Commercial Joint Stock bank Chapter 3 Proposal on retail banking strategy of Southeast Asia Commercial Joint Stock bank in period 2015-2020

ABBRIVIATION

HSBC Hongkong Shanghai Bank Corporate

ISO International Standard Organization

LIBOR London Interbank Offered rate

ODA Official Development Assistance

QD-NHNN Decision of State Bank of Vietnam

SIBOR Singapore Interbank offered rate

Graph 2.1 GDP Growth

Graph 2.2 Consumer price index

Graph 2.3 Number of credit institutions at June 2009

Graph 2.4 Capital mobilization breakdown by group of credit

institutions 2007

Graph 2.5 Ration of Lending and borrowing to GDP

Graph 2.6 Basic, refinancing and discount interest rate in 2009

Graph 2.7 Basic interest rate in period 2005-2008

Graph 2.8 Average interest rates for 12-month-term VND deposits

Graph 2.9 Average annual interest rates for VND loans

Graph 2.10 Competitors Business performance index

Graph 2.11 Shareholding rate of foreign banks in local banks

Graph 2.12 Banks network

Graph 2.13 Number of ATMs nationwide

Graph 2.14 Deposit raising indicators

Graph 2.15 Target of credit operations

Graph 2.16 Credit structure of SeABank at the end of 2008

Graph 2.17 Credit structure of SeaBank at June 2009

Graph 2.18 SeABank profit after tax to achieve

Graph 2.19 SeABank credit split by customers and Economy field

Graph 2.20 SeAbank network till the end of 2008

Graph 2.21 Forecast on GDP growth

Graph 2.22 Forecast on Vietnam’s average per capital income

Graph 2.23 Forecast on Vietnam’s Inflation till 2011

Graph 2.24 Forecast of unemployment rate of Vietnam till 2011

Graph 2.25 SeABank Targeted customer in period 2015-2020

Graph 2.26 SeABank network development plan

Graph 2.27 Percentage of population coverage of SeABank

CHAPTER 1 THEORETICAL BASIS OF COMMERCIAL BANK’S ACTIVITIES

1 Bank and its roles

The foundation history of bank is associated with the history of development of the commodities economy, when K.Marx’s political economy study pointed out that the commodities economy development, to some magnitude, shall naturally bring to the demand

of exchanging commodities between individuals and organizations in the society Money plays the intermediary role of trading and it is issued and secured by the State Money is a special commodity, consequently, bank - money management institution is the term that associated with money In the development process, there are many definitions of commercial banks that different over countries However, the general understanding of bank: Commercial bank is an organization specialize its business in monetary operations among which the main operation is deposits, loans an intermediary settlement

In Vietnam, according to article 20 of Credit Institution Law (amendments, supplement to some article dated June 15 2004 of the National Assembly of The Social Republic of Vietnam) defined:

“Bank shall mean accredit institution permitted to conduct all banking activities and other related business operations Depending

on their natures and purposes of their operations, banks may consist

of different types, such as commercial banks, development banks, investment banks, policy banks, cooperative banks and other types

of banks”

“Credit institution shall mean an enterprise established in accordance with this law and other applicable laws providing banking operations”

This law also defines clearly:

“Banking activities shall mean monetary business and banking services, the regular operation of which is receipt of deposit and use the same to extend credits and provide payment services”

“Extension of credit shall mean an act of commitment by a credit institution to the use of a sum of money on the principle of repayment through the operations of providing loans, discount, finance leasing, issue bank guaranty and others”

Through those concepts, banks obviously play an important role in the economy With the role of financial intermediary, commercial banks help to extend the saving money of individuals and organizations of the economy to credits for the other objects On the other hand, it is also the mediator to extend credits of sovereign bonds to community programs Banks take the role of providing biggest credits to all economic constituents in short, medium and long term

The role of payment intermediary: in the place of client, bank makes payment to seller by issuing cheques, bonds … and electronic payment system

The role of guarantor: in the place of client, bank makes commitment

to seller to make payment even if purchaser falls to insolvency

2 What is a retail bank?

First it must be affirmed that though the operation of banking business

is upper-class and service of special characteristics compared of other kinds of services Even so, terms “wholesale” and “retail” remains in the common principles: The differentiation of wholesale and retail originates from the purpose of purchaser which directly influence sale

“process” and price If he purchases for daily living or production for himself or his family, even for his company, then it is for consumption In this case, the seller who sells directly to consumer is called retailer On the contrary, if purchaser resells goods to other people, then he is called intermediary purchaser – purchase for sales

In this case, the original seller is called wholesaler of level 1 Consequently, there are wholesalers of level 2, level 3 As a matter

of fact, wholesale price is always lower than retail price at the same time and the same market

According to economic expert of Asia Technology Institute -– AIT, retail banking provides products and services individuals, small and medium enterprises via network of outlets Customer can have direct approach to banking services and products by electronic communication and information technology

So it can be assumed that retail bank is the bank that provides its products and services to individuals and medium and small enterprises via its distribution network and this operation take a big proportion in bringing the revenue and profit for the bank

3 Main operations of the bank

3.1 Capital Mobilization

Capital mobilization is one of the most important operations commercial bank This operation brings capital so that bank can conduct other operations such as extension of credits and banking services to clients Looking at the balance sheet of bank we can see that the capital mobilization operation is represented in Liabilities, thus this operation is also called Liabilities mobilization This operation is performed through deposit activities (either in local or foreign currency), specifically:

3.1.1 Capital mobilization by demand deposit

This is the form by which bank can mobilize capital by opening a current account for customer This account serves for the demand of payment via bank On waiting, the dormant capital that is shown in account balance can by used by bank for its business activities

3.1.2 Capital mobilization by individual deposit

This is the form by which bank can mobilize capital by individual accounts, this account serve for those who demand for receiving money transferred to their account: monthly payment of salary, receive money transfer from abroad or domestic individuals On receiving money, account shall be “credited”, when account holder withdraw money, account shall be “debited” The spread between

“Credited” and “Debited” is shown in account balance and bank can mobilize capital by this activity

3.1.3 Capital mobilization by Savings

Individuals and organizations may have idle money in their operations To make these money active, bank design its system of products in order to absorb these idle funds meanwhile profit clients as they still have no intention to use the funds as well as secure the money Normally, bank design deposit products by terms such as: non –term, week-term, month-term, year-term … with corresponding interest There are many methods for mobilization by savings: balance based (higher interest for higher balance),

or based on kind of currency (local or foreign) or based on target customers

3.1.4 Capital mobilization by issuing value papers

Banks can also mobilize capital by issuing value papers such as: deposit certificate, bonds and stocks

In Vietnam, operation of capital mobilization by issuing value paper is guided by Regulation No 02/2005/QĐ-NHNN dated 04/01/2005 of Governor of The State Bank of Vietnam

3.1.5 Mobilization from other credit institutions

Aside from mobilization from individuals and organization, banks can also mobilize capital from other credit institutions such as: banks, financial companies…

In Vietnam, banks can mobilize capital by this method via transactions in the interbank market

3.2 Credit operations

If capital is consider the input for business activities of banks then credit operations are assumed as the operation by which output products of bank is provided Credit operations assume

to bring the dominant revenue for banks Banks grant credits to individuals and organization through the following operations:

 Loan operation: Banks finance individuals and organization for business, production or consumption on the principle of repayment of principal and an added amount which called interest for that principal capitalization Today loan operations

is diversified by borrower’s purposes such as: Working capital complement, fix assets investment, consumption, import-export financing, input purchasing loan, real estate loan… Loan operation of commercial banks in Vietnam is governed

by loan regulation over credit institutions stipulated by The State Bank of Vietnam by Regulation No 1627/2001/QĐ-NHNN dated December 31 2001 of The Governor of The State

Bank of Vietnam and Decision No 127/2005/QĐ-NHNN dated February 03 2005 of the Governor of the State Bank of Vietnam on amendment, complements some articles of the loan Regulation No 1627

In general, loan operations of banks can be classified in the following main forms

By loan tenor: short term, medium term and long term

By credibility of client: mortgage loan and fidelity loan

By loan method: separate loan, line, overdraft limit

By repayment method: Bullet loan, amortizing loan or subject

to financial capabilities of borrower (repayment at any time)

 Alongside loan operations, banks also grant credits to client via assess leasing, factory and guarantee

3.3 Settlement and remittance operations

Individuals and organizations demand settlement activities via bank shall be provided with a current account When balance of the current account is sufficient (or granted an overdraft by the bank) for some certain payments, on behalf of client, bank shall conduct payment and remit to the beneficiary Commercial banks extend settlement and remittance services to both domestic and abroad beneficiaries via:

 Payment by payment order

 Collection or authorized collection

 Payment by bank card

responsibility to perform financial obligations of client (guarantee) when client fails to perform or performs improperly the committed obligation to guaranteed party Main guarantee at banks include:

3.5 Modern banking activities

Ground on application of sophisticated technology, especially in information technology, banks are capable to provide technological products and services With the commencement of electronic banking services, clients are now able have remote accesses to bank to collect information, conduct transactions, and register for new services and products The modern banking activities comprise the following basic operations:

3.5.1 Card issuance (Payment, credit, associated )

Beyond conventional banking products and services, card is modern banking products dedicated for individual clients Upon usage purposes, banks can issue the following main cards to its clients:

 Debit card

 Credit card (Visa, master)

 Associate card 3.5.2 Internet Banking

Clients can also query information, conduct domestic or oversea remittance (subject to law at specific country) or

register for services, sending orders via internet without coming to the bank To provide Internet banking services, banks are obliged to have a capable security system so as to limit risk globally

3.5.3 Mobile banking

It is the mode of online payment via cell phone network The service aims payment transaction of small amount without coming to the bank Similar to Internet banking, Mobile banking requires a good security system to avoid risks for clients and bank To use Mobile banking, normally banks request client to register beforehand: Cell phone number, individual account number for payment, maximum remittance amount… On that basis, banks provides client with a transaction ID and password to perform transaction

on the mobile phone

3.5.4 Call Center

Call center is the bank’s center answering all questions of client This means client can call to a fix phone number of bank to query general information and client’s personal information

Call center is constructed in two modes:

 Automatic answer on incoming calls of clients (IVR )

 Operators directly answer

Call Center requires online connection to the database of the bank, with agent

3.6 Other operations

Besides these operations, commercial banks also have other activities such as: foreign currency business, gold business, real

estate business and equity investment and other joint ventures business

CHAPTER 2 REAL SITUATION OF SEABANK

I Real situation of SeABank

1 History and some outstanding achievements

Southeast Asia Commercial Joint Stock Bank was founded in

1994, Head Office at 16 Lang Ha, Ba Dinh, Hanoi Being one of the first commercial joint stock bank in Vietnam, SeABank has undergone many developments period and recorded quite satisfactory results

Especially in recent years, SeABank recorded decisively growths in terms of equity and scale of operation By December 31 2008, Charter capital of SeABank reached more than 4.068 billion VND, accounted 136% against 2007 Total assets was nearly 22.729 billion VND, total deposit was 16.726 billion VND Total number of clients was 51.000 nationwide, increased 20% against 2007 Total outstanding for the first tier market of SeABank in 2008 was nearly 7.586 billion VND Revenue from services fee was 37,343 billion VND, increased 246% against 2007 Pre-tax profit of was 457 billion VND, raised 12% against that of 2007

By the end of 2008, SeABank clinched with 65 Points of sale in the major cities, metropolitan centers, industrial parks and key economic zones nationwide In 2008 alone, SeABank opened 28 new branches and TOs in Can Tho, Hai Duong, Hanoi, Ho Chi Minh, Khanh Hoa, Binh Duong, Bac Ninh, Quang Ninh, Ba Ria - Vung Tau, etc

Remarkably, in 2008, international settlement activities rocketed to success with marvelous achievements Revenue from international settlement fee reached nearly 16 billion VND, an increase of 232% against 2007

Since mid year of 2008 SeABank officially launched local debit card S24+ and has gained satisfactory achievements By the end of December 2008 SeABank has issued 15.359 cards to clients at all provinces where SeAbank placed outlets SeAbank also has installed more than 30 SeABank ATMs nationwide In the coming time, SeABank shall conduct further study to deliver more handy products such as: International credit card for entrepreneurs and executives, prepaid card for youth, etc Meanwhile, SeAbank also intensify additional utilities to S24+ card such as: online transactions, overdraft services, savings and bonus point for each invoice payment or products/services purchase, etc so as to bring to clients the most useful, safe and utility card products

In December 2008, State Bank of Vientam approved for the Incorporation of SeABank Asset Management Co., Ltd – SeABank AMC, providing asset management and debt recovery services to SeABank as well as external clients, facilitating the transparent capital turnover in the economy

SeABank unceasingly launched new products such as: Partnership with Honda, SeABank Gold Energy; Consumption for Entrepreneur, Special Offer, Gold Enterprises, Home sweet home, Factory The bank successfully launched modern banking services such as SMS Banking, Email Banking and Internet Banking, etc The implementation of these sophisticated services recorded break-through creation in the associated provision of products and services

so as to bring the best utilities to clients

Not only has it accelerated network development and the launching of products and services, SeABank has constantly upgraded and modernized its IT system The Banking administration system T24 was commissioned in the first quarter of 2004, marking a significant step in the modernization of SeABank’s technological infrastructure This system is expected to serve as a technological platform for SeABank to rapidly develop new products and improve processes in

an effort to respond more promptly to the diverse demands of the market, to realize its commitments of unceasing development and to elevate the corporate reputation both at home and abroad

The image of SeABank as a modern bank which enjoys sustainable growth and works in the interest of clients is being built and gradual recognition has been obtained from clients

2 Competitive environment

2.1 Macro environment Two decades after the commencement of its Doi moi (Renovation) policy, Vietnam has made many significant achievements, notably:

Political situation: Vietnam has successfully maintained stable

political situation, social safety and security This has been an important condition which is highly valued by local and foreign investors, indicated by the inflow of foreign direct investment to the country After Vietnam’s accession to the World Trade Organization (WTO), the country’s laws and policies have gradually been fine-tuned while new regulations have been enacted in consistency with its commitments

Socio-economic situation: Economic growth has been staying

high, namely:

Graph 2.1:GDP Growth (percentage per year)

GDP 7,3 7,8 8,4 8,2 8,5 6,2

(Source: IMF, Vietnam index on April 2009) Encouragement has been given to the development of all economic sectors, especially the private one According to incomplete statistics, as at the end of 2008, local businesses numbered almost 500,000 and contributed remarkably to the overall development of the national economy The local stock market has entered a stable period and provided a better indication of the business performance of listed companies and investors’ expectations To date, the total number of companies listed on both HOSE and HNX is 396 compared with 253 for late 2007

FDI had recorded a robust growth with the total registered capital

in 2008 reaching 60.4 bn USD, three times the amount in 2007 Considerable ODA grants were also committed

In 2008, the local economy came under the impacts of the global economy The Vietnamese Government has been taking drastic actions to curb the negative effects of the crisis As part of this effort, 8 groups of solution were introduced, including:

First, a tightened monetary policy was adopted in a proactive and

flexible manner, ensuring the control of inflation, macro-economic stability, and mobilization of resources for development

Second, in terms of fiscal policy, efforts are to be made to increase

revenues, tighten public spending, improve the efficiency of the use of State budget, curb budget deficits, cease the further expansion of expenditures, review investment projects, eliminate inefficient projects, and extend the time frame of newly started and yet-to-be-started ones

Third, to ensure supply-demand balance regarding important

supplies such as petroleum, power, cement, steel and iron,

fertilizers and essential consumer goods like food and foodstuff, etc

Fourth, to strengthen market pricing management measures,

prevent speculation, especially with regards to such items as steel, building materials, food, and fertilizer

Fifth, to promote exports and reduce trade deficits, especially the

product lines in which Vietnam possesses many advantages such

as aquaculture, apparels, footwear, etc., to concentrate on removing difficulties in exportation, particularly the conversion of foreign currencies into VND and the shortage of credit facilities for local exporters

Sixth, to remove all obstacles, ensuring the stability of investment

and production as well as to promote agricultural production, especially husbandry

Seventh, to adopt solutions and policies to support the poor worst

affected by natural disasters and price hikes; to focus on implementing measures to support farmers suffering losses in the devastating cold spell; to support local people affected by price rise, first of all to the poor and those in poverty-stricken areas; to turn difficulties into opportunities for sustainable socio-economic development

Eighth, State authorities and agencies at various levels and

businesses in all economic sectors are to actively implement policies and solutions designed to curb inflation, practice economy, combat wastefulness and fight speculation Mass media are to provide accurate coverage of the economic situation, thus creating confidence and optimism among the people about the potentials for socio-economic development of the country

(Source: www.chinhphu.vn)

These solutions together with the 8-billion-USD stimulus package are proving effective, demonstrated by the initial signs of recovery This policy has been highly valued by the international community and is considered appropriate to boost economic development

Besides the achievements it has made, the local economy is still faced with numerous challenges and difficulties:

First: Despite the good economic growth, inflation remains high

(8.3% in 2007, 22.97% in 2008) This has directly affected people’s life

Graph 2.2: Consumer price index

(Source: IMF) Second: Although the registered FDI amount is high, the

implemented sum is not satisfactory Only 11.5 bn USD was disbursed out of the registered 60.3 bn USD, which means a ratio

of 19% (the ratio in 2007 was 36%)

Third: Trade deficits remain high In 2007, trade deficits stood at

14.12 bn USD while the figure for 2008 is 18.45 bn USD

2.2 Industry environment

Consumer Price, 22.97

0.00 5.00 10.00 15.00 20.00 25.00 30.00

Vietnam’s transformation from a one-tier banking system to a tier model was first recognized in 1990 with the separation of commercial banks from the State Bank of Vietnam The booming

two-of newly formed joint-stock commercial banks, joint-venture banks, financial corporations and foreign banks speaks volume for this change

The country’s system of credit institutions, excluding 926 people’s credit funds, currently comprises of:

Graph 2.3: Number of credit institutions at June 2009

Representative offices of foreign banks 53

(Source: SBV) Statistics released by the SBV in 2007 showed that State-owned and social welfare banks made up the bulk of the market share of both credits and deposits In recent years, however, there has been

an increase in the market share of joint-stock commercial and foreign banks

Graph 2.4: Capital mobilization breakdown by group of credit

institutions 2007

(Source: State Bank of Vietnam 2007) Yet, compared with several countries, the ration of lending and borrowing to GDP remains low, namely:

In terms of credits:

Graph 2.5: Ration of Lending and borrowing to GDP

In terms of deposits:

(Source: ADB)

Thus, in comparison with Singapore, Malaysia and China, there is

a remarkable distance which means that Vietnam’s ration of credits and deposits to GDP must be increase further in order to reach the similar level of development This, however, is recorded

on a relative basis Considering on an absolute basis, Vietnam’s GDP remains small and thus the point is how to use the credits to and deposits from the economy in an efficient manner Research shows that Vietnam’s ICOR is now standing at about 5 while ICOR of other countries is between 2 to 3 As such, in order for the growth rate to increase, it is necessary to impose a tight control

on the efficiency of investment, thus being able to curb inflation

Interest rate policy: Formerly, interest rate was not considered a

tool of regulating the supply of money to the market and did not properly play its role in macro monetary policy regulation More recently, interest rate has been employed by the SBV in governing monetary policy and has proved efficient, namely

Graph 2.6: Basic interest, refinancing interest and discount

interest rate in 2009

Blue line: Base interest rate Redline: Refinancing interest rate Green line: Discount interest rate (Source: IMF, Worldbank)

As can be seen in the graph, the base interest rate and refinancing interest rate hit the highest level in the current decade This has facilitated the regulation of the supply of money to the economy as well as reducing inflation These rates tend to decrease as the economy becomes stable This interest policy helped bring down the overheated credit growth of some 54% in 2007 to 25% in

8.5 7.5

`1/1 `1/2 19/05 `11/6 21/10 `5/11 `21/11 `5/12 22/12

(Source: Annual report of SBV in 2005,2006,2007,2008)

In terms of exchange rate policy: For a long period between 2001 and 2007, Vietnam pegged its currency to a rate of 15,500 VND against one USD In 2008, the supply-demand developments of foreign currencies on the market were unstable as a result of changes in the inflow of foreign currencies into the country, increasing trade deficits as well as speculation The SBV flexibly adopted solutions to stabilize the foreign currency market, support exports and curb trade deficits:

Increase the trading band for the United States Dollar from

0,75% to 3%; administer the inter-bank offering rate consistently with the demand for foreign currencies and with a view to supporting exports and restricting trade deficits

Coordinate with the Ministry of Industry and Trade to strictly control trade deficits, intervene in foreign currency trading so as to restrict the growth rate of means of payment, ensure the increase

of foreign exchange reserves, obtain foreign currency

supply-8.258.258.258.25

12

14 14 14 14

13 12 11 10 8.5

0 2 4 6 8 10 12 14 16

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Năm 2006 Năm 2007 Năm 2008 Năm 2005

demand balance, and meet the essential demand for foreign currencies

Step up the inspection and supervision of the implementation of regulations on foreign exchange management; amend, supplement and promulgate regulations on foreign exchange management, particularly the management of exchange counters, in order to control illegal speculation and trading of foreign currencies on the black market

The flexible exchange rate policy and the increased USD/VND rate facilitated exports and reduced the pressure of international payment balance deficits The Vietnamese Government publicized the foreign exchange reserves and ensured the sufficiency of foreign currencies for the import of essential commodities as well

as machinery and equipment for investment and production activities

Average deposit interest rates on the market:

Graph 2.8: Average interest rates for 12-month-term VND

deposits

(Source: IMF)

0 2 4 6 8 10 12 14 16 18

2001 2002 2003 2004 2005 2006 2007 2008

5.3 6.45 6.62 6.17

7.15 7.63 7.49

16.65

It can be seen that in 2008, the high average interest rates originated from the overheated growth of credits in 2007 Banks had to raise interest rates in order to assure liquidity in their activities, which automatically led to rocketing lending rates

Lending rates offered by credit institutions to the economy: Graph 2.9: Average annual interest rates for VND loans

(Source: IMF)

In 2008, when deposit interest rates increased dramatically, credit institutions had to raise lending rates applicable to economic entities and individuals This reduced businesses’ demand for loans amid diminishing rate of return What followed this was the shrinkage of economic activities, giving rise to lower GDP growth rate (6.2% in 2008)

Amid impacts of the economic downturn with plunging stock and real estate markets, the SBV issued Decision 03 under which loans provided by credit institutions for stock trading were not to exceed 20% of their charter capital and real estate lending was tightened Accompanying this decision was a circular designed to provide interest rate subsidies of 4% in an effort to promote local

0 2 4 6 8 10 12 14 16 18 20

2001 2002 2003 2004 2005 2006 2007 2008

9.42 9.06 9.48 9.72

11.03 11.18 11.18

19.11

production and generate jobs In the first phase, the Government only subsidized short-term loans intended to supplement working capital for businesses while the second phase is characterized by the financing of equipment and machinery for production The subsidy package will last for 02 years until the end of 2010

Modernization of banking activities and development of cash payment:

non-Modern technologies continued to be applied for payment systems for the purpose of automation, service expansion and acceleration

of processing In particular, from November 18th 2008, the second phase of the inter-bank payment system was officially commissioned to replace phase 1 with the processing capacity of 2 million transactions per day, contributing to the expansion and improvement of payment quality and the circulation of capital The project for building a uniform card switching center and re-structuring the national card switching joint stock company (Banknetvn) is being implemented promptly Up to now, the two largest card unions, i.e Banknetvn and Smartlink, covering 65%

of the number of ATMs nationwide have been successfully connected

The card and individual account opening services have developed rapidly with some 15 million individual accounts, up by 36% against the end of 2007 and 13.4 million cards, up by 46% against the end of 2007 The number of ATMs climbed to 7,000, up by 2,200 units compared with late 2007

Payment supporting services provided by companies acting as intermediaries between payment service providers and users have also appeared and are expanding in terms of content, scope of operation

The development of non-cash payment services has helped reduce the proportion of cash payments in the total means of payment from 18% in late 2007 to the present 14%

2.3 Competitors

As mentioned above, there are currently 178 credit institutions (exclusive of 926 people’s credit funds), we can take an overview

of banks as follows:

Table of indicators of assets and profit of banks

Graph 2.10: Competitors Business performance index

No Banks in

Vietnam Total assets % change

Profit (loss) after tax

21 OCB 6.441 11.755 10.094 83% 168 65

22 SGB 6.207 10.185 11.205 64% 170 164

23 Nam Viet Bank 1.126 9.903 N/A 779% 74 N/A

24 Viet A Bank 4.181 9.467 N/A 126% 147 N/A

25 Nam A Bank 3.884 5.240 5.891 35% 75 9

26 GP Bank N/A N/A 7.705 N/A N/A N/A

27 Ocean Bank N/A N/A 14.091 N/A N/A 45

28 SHB N/A N/A 12.302 N/A N/A

29 Bac A Bank N/A -N/A -

30 PG Bank N/A N/A 6.230 - 70

31 Kien Long

Bank 827 2.200 N/A 166% 54

32 Western Bank N/A 1.295 N/A -

(Source: Annual report of these banks collected by SeABank)

On the other hand, we can see some commercial banks of Vietnam have their strategic partner

Graph 2.11: Shareholding rate of foreign banks in local banks

Capital

% of Shareholding

Majority Country

Dragon Financial Holding

8 Habubank 2.800 10% DE 2007 Deutsche Bank

9 Southern Bank 2.027 15% SG 2007 United Overseas Bank

At present, most local and foreign banks divide their product portfolios by customers, including:

Basic loan products:

 Fiduciary loan

 Home loan

 Car loan

 Student loan

 Loans backed by valuable papers

 Stock trading loan

 Overdraft

 Mortgage-secured loans All individual loans are provided in VND, except for some special cases permitted by the SBV’s foreign exchange regulations for such purposes as study and medical treatment, etc Some local banks may provide loans in gold

Depending on the financial conditions of customers and the purposes of lending, banks may provide short-term, medium-term or long-term loans

As well as individual financial advisory products and services

2.3.1.2 Small and Medium-sized Enterprises (SMEs)

 Working capital financing

 Fixed assets and project financing

 Club deal

 Receivables financing

 Imports and exports financing

 Agricultural financing

 Loans backed by pledge of savings books and valuable papers

 Loans for professional customers

 Notification and confirmation of export L/C

 Discount of set of export documents

 Assignment of L/C

 Issue of payment cheques

For customers being big corporations and groups, banks chiefly provide deposit products such as demand deposits, cash management, domestic and international settlement, and big loans for large projects

2.3.2 Interest rate policy

Regarding deposits, most banks adopt the policy of “the longer the term, the higher the interest rate Differences in deposit interest rate mainly depend on the size of the bank, liquidity and the demand for loan

(Refer to Appendix 1 for deposit interest rates)

Lending rate: Basically, both local and foreign banks are adopting floating rates for loans, for example:

VND interest rates are fixed for a single period (3 or 6 months) while for subsequent periods, interest rates are computed as follows:

Interest rate = Interest rate for 12-month-term savings (VND) + Margin (%)

For foreign-currency loans, interest rates are also floating ones, namely:

Lending rate for foreign currency loans = LIBOR (SIBOR 12 month) +Margin (%)

Some other banks, however, are computing lending rate based on input capital costs plus a certain band

The determination of lending rates by banks also depends on the creditworthiness of customers Most banks are now adopting their own customer scoring and rating system for the purpose of determining such creditworthiness A high creditworthiness means

a low interest rate while a low creditworthiness will entail a high interest rate Customers who have credit rating lower than a benchmark set by a bank may be rejected

In Vietnam, banks determine their own lending rate while having

to comply with Decision 127/2005/QD-NHNN of February 3rd

2005 by the SBV Governor on the amendment and addition of a number of articles of the Regulations on Lending by Credit Institutions to Customer under Decision 1627/2001/QD-NHNN of Dec 31st 2001 by the SBV Governor

Besides, banks also have to comply with a regulation under which the lending rates applicable to businesses must not exceed 150%

of the base interest rate fixed by the SBV in the same period

Regarding consumer loans, banks and customers may negotiate and agree on a higher interest rate

Mode of interest computation: Currently, banks mostly use the following three forms of interest rate:

 Rate computed on declining balance

 Rate computed on initial balance (add-on)

 Rate computed on annuity basis

2.3.3 Network and ATM system

In order to meet customers’ demands, banks have been expanding their network Banks’ network includes:

of banks in Vietnam is some 5,600, which means one outlet for every 15,178 inhabitants Meanwhile, the figure in more developed countries is about 1,000 inhabitants for one outlet Thus, it is a matter of fact for banks to continue the expansion of their network in the future

During their network development, banks in Vietnam are required

to comply with Decision 13/2008/QD-NHNN of April 29th 2008 governing the operation network of commercial banks issued by the SBV Governor, which provides that:

 Each bank can only have one Exchange

 The number of branches to be opened shall comply with the following formula:

100 bn x N1 + 50 bn x N2 < C

Where:

C is the bank’s charter capital N1 is the number of branches which have been opened and proposed for opening in Hanoi and HCM City

N2 is the number of branches which have been opened and proposed for opening in administrative subdivisions apart from Hanoi and HCM City

 NPL must not exceed 3%

At present, the network of branches and transaction offices of banks in Vietnam is as follows:

Graph: 2.12: Banks network

(Source: SeABank) Concerning ATM systems, Vietnam now has two major unions, i.e Smart Link and Banknet, for connecting ATMs of banks The number of ATMs as at the end of 2009 is as follows:

245 184145143142136131105 94 76 75 69 65 64 63 60

Graph 2.13: Number of ATMs nationwide

(Estimated by SeABank)

3 SeABank’s internal strengths

In recent years, SeABank has gradually established its position on the market with impressive growth indicators such as:

In terms of deposits Graph 2.14: Deposit raising indicators (Unit: bn VND)

2009

1 st tier market 2,312 3,512 10,744 8.587

18.089

2 nd tier market 2,805 4,834 9,805 8.143

6.083

Total deposits 5,117 8,346 20,549 16.730 24.172

(Source: SeABank annual report)

In 2008, financial and monetary market of Vietnam faced many difficulties with the decrease of fund mobilization target in comparison with that of 2007, the year of 2008 is considered a

4597

7480

milestone in terms of both deposit and credit interest rate in the above analysis

Credit operations to achieve Graph 2.15: Target of credit operations (unit: billion VND)

2009

1st tier market 1,350 3,363 11,041 7.586 15.376

2nd tier market 2 3,877 3,317 8,585 9.160 7.083 Total outstanding 5,227 6,680 19,626 16.746 22.459

(Source: SeABank annual report) Regarding to structure of credit, specially in retail banking credit we can see the detail bellows:

Graph 2.16: Credit structure of SeABank at the end of 2008

(Source: SeABank annual report) Percentage of retail banking credit at the end of 2008 is 35% of total credit of bank, corporate credit is main credit in the bank with 400 big companies

At June 2009, the structure of credit has been changed, percentage of retail banking credit is decreased:

Corperate 65%

SMEs 15%

Individual 20%

credit structure at the end of 2008

Graph 2.17: Credit of structure of SeABank at June 2009

For SeABank is the same situation and poor products is another reason

Graph 2.18: SeABank profit after tax to achieve (unit: billion VND)

Corperate 74%

SMEs 18%

Individual 8%

Credit structure at June 2009

0 50 100 150 200 250 300 350

2006 2007 2008 98.5

299

342

(Source: SeABank Annual report) With its achievements, SeAbank ranked grade A for four continuous years by SBV, which is an important condition for network development Moreover, SeAbank has been given many other prizes such as Excellent Bank of International Settlement Award by Citibank and HSBC

3.1 Product network and policies SeAbank products and services catalogue currently provides customers with more than 60 products and services, particularly 32 for individuals and 28 for corporate

In general, SeAabank product catalogue is assumed to meet the requirements of the market

Regarding products of capital mobilization: SeABank has issued

products to support the mobilization for individual and organization as followings:

 Non-term saving

 Term saving with end-of-term interest payment

 Saving with flexible principal withdrawal

 Elevator saving

 Super interest rate savings

 Millionaire saving

 New millionaire saving

In 2008, SeAbank issued many products such as “Super interest rate saving”; “Saving for millionaire”, “New super interest rate saving”, “Saving for new millionaire”, etc Attractive presents as

well as extremely flexible saving interest of SeAbank have drawn nationwide customers’ attention At the same time, these products have made fresh image of SeAbank and brought about over VND 6,000 billion of the mobilization of all terms