BUSINESS STRATEGY OF LA VIE LIMITED LIABILITY COMPANY

- Mobilized capital is highly unstable so banks need to reserve - Mobilized capital accounts for the largest proportion in the total capital ofCBs.. - Loans do not account for a large pa

Paris Graduate School of Management Thai Nguyen University

INTERNATIONAL EXECUTIVE MASTER OF BUSINESS ADMINISTRATION PROGRAM

TABLE AND CONTENT

INTRODUCTION 7

1 The subject’s importance 6

2 Research thesis purposes 9

3 The subject and scope of the research thesis 9

4 Research thesis approach 9

5 Structure of the thesis 9

CHAPTER I 11

FUNDAMENTAL THEORETICAL BASIS FOR CAPITAL MOBILIZATION EFFICIENCY OF CBS 11

1.1 CBs’ capital and capital mobilization 11

1.1.1 Capital and the need of capital mobilization 11

1.1.2 Capital of CBs 11

1.1.2.1 The CB concept 11

1.1.2.2 CBs’ features 13

1.1.2.3 Roles of CBs 14

1.1.2.4 The functions of CBs 15

1.1.2.5 Capital of CB definition 15

1.1.2.6 Funds of CBs 17

1.1.3 Capital - mobilization at CBs 22

1.1.3.1 The concept of capital - mobilization 22

1.1.3.2 Objectives and principles of mobilizing capital at CBs 23

1.1.3.3 The forms of capital - mobilization 24

1.1.4 The role of mobilized capital for business activities of CBs 27

1.2 The efficiency of CBs’ capital mobilization 28

1.2.1 The concept of capital mobilization efficiency 28

1.2.2 The need to improve the efficiency of capital mobilization 28

1.2.3.1 The qualitative indicators evaluating the efficiency of banks’

capital mobilization 30

1.2.3.2 The quantitative indicators evaluating the efficiency of banks’ capital mobilization 31

1.2.4 Factors influencing the efficiency of capital mobilization 35

1.2.4.1 Objective factors 35

1.2.4.2 Subjective factors 36

Chapter II 41

SITUATION ANALYSIS OF ACTUAL CAPITAL MOBILIZATION EFFICIENCY AT BIDV’S SOUTHERN HANOI AFFILIATE 41

2.1 An overview of the Bank for Investment and Development of Vietnam – Southern Hanoi Affiliate 41

2.1.1 Formation history BIDV’s Southern Hanoi Affiliate 41

2.1.2 Organizational structure and operations of BIDV’s Southern Hanoi Affiliate ………42

2.1.3 The operation of the Bank for Investment & Development of Vietnam – South Hanoi Branch 44

2.1.3.1 Mobilization activities 45

2.1.3.2 The use of capital (loans and investments) 48

2.1.3.3 The provision of banking services 51

2.2 The reality of capital mobilization’s effectiveness at the BIDV – South Hanoi Branch 53

2.2.1 The reality of capital mobilization at the BIDV - South Hanoi Branch 54 2.2.1.1 Profit from capital mobilization 54

2.2.1.2 The Return on Revenue (ROR) 55

2.2.1.3 The Return on Cost 56

2.2.1.4 The growth of mobilized capital 57 2.2.1.5 The compatibility between capital mobilized and capital demand 59

2.2.2 The scale and structure of capital mobilization at BIDV South

Hanoi Branch 61

2.2.2.1 The form of capital mobilization 61

2.2.2.2 The maturity of mobilized capital 63

2.2.2.3 Issuance of debt instruments 65

2.2.2.4 Other forms of mobilization 65

2.3 Assessment on the effectiveness of capital mobilization in the BIDV South Hanoi branch 66

2.3.1 Assessment on the effectiveness of capital mobilization by criteria and by the results achieved 66

2.3.1.1 The branch always mobilizes capital effectively 67

2.3.1.2 The amount of capital mobilized is large and has good quality 67

2.3.1.3 The capital mobilized structure is initially diverse and consistent with the capital demand 68

2.3.1.4 Mobilized capital adequacy 69

2.3.2 The backlogs in the mobilization activity and the causes 70

2.3.2.1 The backlogs 70

2.3.2.2 The causes of the backlogs 72

CHAPTER III 76

SOLUTIONS FOR IMPROVING THE EFFICIENCY OF CAPITAL MOBILIZATION IN BIDV - SOUTH HANOI BRANCH 76

3.1 The concept of improving the efficiency of capital mobilization at the Bank for Investment & Development of Vietnam - South Hanoi Branch 76

3.1.1 To increase mobilized capital of the lowest cost 76

3.1.2 To mobilize all source of capital in the area at the highest level 77

3.1.3 To enhance the effectiveness of capital mobilization together with the efficiency of capital use 77 3.1.4 To increase the proportion of medium- and long-term capital to

3.2 A number of measures to improve the efficiency of capital mobilization

in the Bank for Investment & Development of Vietnam - South Hanoi Branch 79

3.2.1 To maintain, improve the policy of mobilizing interest rate flexibly and reasonably to minimize the mobilization cost 79

3.2.2 To continue to diversify capital mobilization forms and build a mobilizing strategy match with capital using 82

3.2.3 develop the mobilization plan and capital structure appropriate to the use of capital 84

3.2.4 To promote Marketing and enhance the position of the bank 84

3.2.5 To innovate and modernize the banking technology 86

3.2.6 To strengthen the deposit by all measures 87

3.2.7 To development services related to capital mobilization in order to attract low-cost capital 88

3.2.8 To continue to improve and enhance the qualifications of employees 89 3.3 Recommendations 91

3.3.1 For the Government 91

3.3.1.1 Create a stable macroeconomic environment 91

3.3.1.2 Promote non-cash payment 91

3.3.1.3 Complete the system of competition law 92

3.3.1.4 Promote the development of the financial market 92

3.3.2 For the Central Bank 93

3.3.2.1 To inhibit inflation, to stabilize the money value 94

3.3.2.2 Together with the government to promote the development of the bank payment 94

3.3.2.3 To continue flexibly operating the interest rate tool, the monetary policies, and the fiscal policies 94

3.3.2.4 To develop open market operations 95

3.3.2.5 To create policies supporting CBs in technology innovation 95

3.3.3 For the Bank for Investment and Development of Vietnam (BIDV)

95 3.3.3.1 To build a reasonable business strategy based on the specific

conditions of the branches 96

3.3.3.2 To develop and expand the BIDV network 97

CONCLUSION 1010

REFERENCES 101

WARRANTY 102

ABBREVIATIONS 103

LIST OF TABLE 106

1 The subject’s importance

2011 was a stormy year for the economy of Vietnam in general and forenterprises in particular The efforts made by the Government have helpedVietnamese economy partially overcome difficulties in 2011 However, there arestill challenges facing Vietnam economy in the year of 2012

In 2012, Vietnam's economy has still been facing difficulties due to theglobal economic crisis and the impact of the fall in foreign direct and indirectinvestments To achieve the target of growing GDP from 6 to 6.5% in 2012, one-digit inflation rate, the state budget deficit below 4.8% and credit growth from 13-15%, it is necessary to the Government to monitor flexibly Besides, it can be seenthat the State Bank of Vietnam and the Ministry of Finance will tighten theirmonetary and financial policies Accordingly, the three industries, which arepredicted to face a great number of difficulties, include real estate, stock market andcommercial banks

Effective business performance is vital for any enterprise In order toestablish a business and operate its activities, capital is a prerequisite condition tomaintain and develop production activities and reflects the financial resourcesinvested in the production process and business The hunger for capital is one of thepressing issues facing enterprises, particularly nowadays, when businesses expect toinvest to expand their production and diversify their services to enhance theircompetitiveness after Vietnam joined World Trade Organization (WTO) Capitaldetermines the competitiveness of every enterprise of which CBs are not theexception Efficient capital mobilizing (or fund-mobilizing) is the prerequisite forbanks to survive and grow Like lending, capital - mobilization is a major andtypical profession of a commercial bank (CB)

In the process of socio-economic development in Vietnam today, capitaldemand is always among top priority issues before starting a new fiscal year This

development strongly depend on capital Particularly, CBs - financial institutions infinancial markets which do business in the field of money and currency, capitalplays a more important role comparing with other organizations In the context ofharsh competition in the banking sector nowadays, the efficiency of capitalmobilization is one of the factors that help banks to improve their competitiveness

in the market The main activity of CBs is lending, i.e providing loans andcollecting interests Therefore, in order to meet the market capital needs, CBs mustraise capital externally In other words, capital mobilization plays a key role forbanks that want to survive and develop On the other hand, the development ofcredit institutions, especially CBs is the prerequisite for the development of thecapital market, which facilitates the development of the social economy Those saidanalyses explain the importance of CBs’ capital mobilization to the currenteconomic development and clarify why CBs’ capital mobilization profession should

be studied and explored

Given the difficulties that CBs must face in 2012 in addition to the target ofcontrolling the credit growth and quality and limiting bad debts, the capitalmobilizing target is placed on top by CBs

Banking is a unique industry with its unique products and services since itsequity accounts for a small percentage of the working capital Therefore, the morefunds CBs can mobilize from economic entities, the easier their activities are Only

by mobilizing capital can CBs have funds for lending and further improve theirother activities That is the reason why a great number of banks mutually vie withothers by increasing their interest rates for their effective capital mobilization.The global financial crisis and economic downturn in the mid-2008 have had strongimpact on the capital mobilization activities of Vietnamese CBs in general and ofBIDV (Bank for Investment and Development of Vietnam) in particular

The current international economic integration has created a great deal ofchallenges for CBs in Vietnam In fact, Vietnamese CBs seriously lack of funds due

that do not really meet customers’ demands This results in their ineffectivebusiness performance.

The capital issue has always been a top priority for BIDV Southern Hanoiaffiliate over the past years Capital mobilization is considered effective whenbanks’ capitals are abundant and available to meet the needs of withdrawing cash aswell as borrowing among inhabitants, enterprises and other organizations With itsmotto “Considering capital mobilization is an important stage and create space forfirm capital growth”, BIDV Southern Hanoi affiliate has attempted to diversifyfund mobilization forms through expanding its transaction network as well asimproving the quality of banking services subject to the following criteria: "Fast,accurate and convenient for customers." However, capital mobilization is still a

"hot" issue for BIDV Southern Hanoi Affiliate The economic fluctuations, theincrease or decrease in gold prices and exchange rates have influenced mostpeople’s psychology An illustration is that the increase in gold prices results in thetrend in which almost all people tend to withdraw their deposits in banks topurchase gold for short-term and quick earnings Real estate market can also help itsdealers earn much money Therefore, with the current low interest rates, it isdifficult for banks to attract funds from individuals as well as businesses.Accordingly, when banks are short of capital, it is not easy for them to ensure anabundant money supply to individuals and organizations

According to the above-mentioned theoretical and practical analyses, I

decide to select my MBA thesis subject namely "Improving the capital mobilization efficiency for BIDV’s Southern Hanoi Affiliate" The thesis

objectives are raising my own theoretical awareness, knowledge and practicalexperience and partially contributing to strengthen the capital mobilizationefficiency for the Affiliate The purposes and roles of the thesis are to clarify somefundamental issues on capital mobilization and present recommendations toimprove its efficiency

2 Research thesis purposes

• Explain the basic theories relating to the capital mobilization efficiency forCBs in the market economy

• Analyze and evaluate the efficiency of mobilizing capital at BIDVSouthern Hanoi Affiliate Hanoi and look into its achievements, shortcomings andreasons

• Propose solutions to improve the capital mobilization efficiency at theBank Affiliate in the context of harsh competition in Vietnam today

3 The subject and scope of the research thesis

• Research thesis subject: the efficiency of CBs’ capital mobilization

• Research thesis scope: covers the efficiency of BIDV’s Southern HanoiAffiliate in 2008-2012 stage and proposing relevant solutions and recommendations

to improve the capital mobilization efficiency for next periods

4 Research thesis approach

This thesis applies the following research methods:

- Qualitative analysis,

- Quantitative analysis,

- Method of collecting information and data: data are collected from:

+ Report on the operation performance of BIDV’s Southern Hanoi Affiliate

in 2008-2012 period,

+ Relevant documents, newspapers and professional journals

- Methods of analysis and synthesis:

+ Chronological analysis and synthesis (2008-2012)

+ Subject analysis and synthesis (compared with other CBs)

+ Analysis and synthesis of subject groups and issue groups

- Comparison method

5 Structure of the thesis

In addition to the introduction and the conclusion, the thesis content consists

Chapter I FUNDAMENTAL THEORETICAL BASIS FOR CAPITAL MOBILIZATION EFFICIENCY OF CBS

AFFILIATE

Chapter III SOLUTIONS TO THE IMPROVEMENT OF CAPITAL

AFFILIATE

CHAPTER I FUNDAMENTAL THEORETICAL BASIS FOR CAPITAL

MOBILIZATION EFFICIENCY OF CBS

1.1 CBs’ capital and capital mobilization

1.1.1 Capital and the need of capital mobilization

In economics, capital is a relatively complex category and it is difficult tofind a consistent definition among viewpoints In his work namely Capital, KarlMarx outlined the categories of capital According to Marx, capital brings surplusvalue This definition fully reflects the nature of capital:

1) Capital represents a certain type of property;

2) Capital always circulates and makes profit during its circulation;

3) Capital is a commodity and like other commodities, it has actual purpose

In short, capital is a property that is used in production in order to createmore properties

All in all, capital is a social property used to invest in future efficiency.Therefore, in the market economy, regardless of any field or industry in which acompany is doing business, capital plays an important role that determines itsefficiency Banks, too, would like to work business effectively, leads to highefficiency is the command capital needs to be attention Banks are not theexception: in order to effectively operate, they must pay sound attention to theircapital mobilization

1.1.2 Capital of CBs

1.1.2.1 The CB concept

CB system is regarded as the result of long formation and developmentprocess of the commodity economy and the commodity and currency relations.Although the concept of CBs is various in different nations, CB is regarded aprofessional monetary enterprise, a financial intermediary which transfer funds

In Vietnam, the Ordinance on Banks, Credit Cooperative and FinancialCorporation dated 1990 defines CB as follows: "CB is a monetary organization ofwhich the main activity is to receive its customers’ deposits These deposits would

be refunded to customers and used for loans, discounts and used as a method ofpayment.”

There are several CB definitions depending on legal norm of each nation.Vietnam is in the process of building and developing a financial market model ofwhich the core part is CBs operated under the nation’s macro-regulation Thanks tothe transition from a bureaucratic centralized economy to a market one with thecountry’s management, Vietnamese bank system has been significantly innovated

A fundamental change in the bank organization model is the separation of themonetary and credit management function from the monetary trading function.Other changes include the diversification of bank types, the gradual removal of themonopoly and the turning point to the competition model under the control of thegovernment Two-level bank system has been formed in Vietnam since 1988 Thissystem was officially legalized by two Ordinances on banks including Ordinance onState Bank and Ordinance on Credit Cooperative Bank and Financial Corporationdated 1990 Since then, the bank system model’s components have been as below:

- State Bank: is a state management organization in the monetary, credit andbanking industry

- CBs: are enterprises that do monetary business

Accordingly, in order to strengthen management, guide the activities ofbanks and other credit institutions, and create favorable conditions for thedevelopment of the economy while protect the legitimate interests of relevantorganizations and individuals, Article 20 of the Law on the Organization ofVietnam was issued in 1997/10th National Assembly The Article states: "CBs are now established under the provisions of this law and other legal regulations on monetary trades, banking services relating to customers’ deposits These banks’

responsibilities are to refund deposits to customers and use deposits for discount and payment services "

As being defined above, CBs are businesses operating in the monetarysector, have the accounting of revenue and expenditure, take the performancebusiness into account and always seek ways to maximize their profitability throughthe follows:

- Deposits of customers including businesses, individuals, organizations andstate agencies, and

- Using deposits for loans and discounts

Besides, CBs have other services including guarantee, collection, andpayment, etc The development of CBs is associated with the development offinancial markets At the early stage, CBs’ organization and operations were quitesimple but they are increasingly complex and professional Nowadays, CBs tend tofurther and comprehensively expand their operation scale and diversify with avariety of services and mobilize most social idle funds for loans The development

of the CBs is no longer limited within the domestic market but start to expand intointernational markets Some examples of international banks are the World Bank(WB), Banks Asian Development Bank (ADB), etc The application of informationtechnology and modern equipment system makes banks’ activities more complete.While CBs have function of receiving money to lend, and play the role as financialintermediaries, they have to comply with the state management and are under thecontrol of the State Bank of Vietnam Through this management system, CB systemperformed its functions in the economy

1.1.2.2 CBs’ features

CBs share these following characteristics:

1 CBs are enterprises that make profits through interests Their main aim isthe pursuit of profit The business type of CBs is unique with the right of usingmoney and non-physical-products and activities being associated with the

2 A CB is a business type of higher risk levels than with other forms ofbusiness and often has profound effects on other sectors and the whole economy.Therefore, in order to avoid risks, control and minimize damages resulting frombanks’ bankruptcy, the government has issued special laws to ensure that the banks’operations are safe and effective.

3 CBs are typical financial intermediaries:

- CBs are intermediaries between those have abundant funds and those needfunds

- CBs are intermediaries between the central bank and both individuals andthe economy

1.1.2.3 Roles of CBs

In the current conditions of our country, the state budget is limited so itcannot be entirely relied on Besides, the stock markets, which have recently beenformed with scarce goods and low performance, cannot fully meet the capitaldemands Therefore, in the next periods, mobilizing capital for the development ofthe economy is mainly made through financial intermediaries, particularly banks.That is the reason why banking activities are an important factor promoting thedevelopment of the economy Several important roles CBs are as follows:

- Thanks to their capital mobilizing and lending activities, CBs addresstemporary capital lacks in the economy and help organizations operate moreeffectively

- Operations of CBs contribute to enhance enterprises’ business performance,thereby contribute to the development of the economy

- CBs allocate funds among regions; thereby create the conditions for theuniform economic developments among different regions within a country

- Effective activities of CBs contribute to the implementation of the nationalmonetary policies such as price stabilization, inflation control, job creation andeconomic growth

- CBs are bridges spanning nations

1.1.2.4 The functions of CBs

CBs have the below functions:

- Functions of financial intermediaries,

- Payment intermediary, and

Capital of CBs plays an important role not only in business but also in theprocess of socio-economic development So, what is the capital of CBs?

Economists define capital of CBs as follows:

Capital of CBs is the monetary value generated or mobilized by CBs, used to lend, invest or implement other business activities.

As being defined above, the capital mobilized by CBs is a part of the profits

or funds contributed by shareholders every year or mobilized as part of nationalincome, which is temporarily idle during the production, distribution andconsumption This idle income is deposited in banks for different purposes In otherwords, customers transfer their right of using fund to banks and then receive anincome from the said transfer of the right Therefore, banks’ role is collecting andallocating funds to the economy in the form of currency that results in the moreabundant flow of capital, improves services and all business activities Capitalmobilized by banks plays an important role in the development of every business inparticular and the economy in general At the same time, these activities are also

- Roles of capital:

A bank is also an enterprise, so the first role of capital at CBs is the factordeciding the scope, power and the ability to expand the scale of the bank In theeconomic perspective, it is possible to generalize the role of capital in the operations

of a CB under some of the following aspects:

+ Capital is the basis of banking activities: banks must have capital tooperate Capital reflects banks’ ability of doing business

Banks must have legal capital in order to obtain legal permit so that they can

be entitled to establish In order to perform their roles, banks must pay attention toincrease their capital regularly

+ Capital of CBs decides their scope and ability of expanding their business:The scope of banks is mirrored through their total assets (cash, securities, loan size,fixed assets, etc.), if capital is large  high value of assets

Scale: if their capital is large, banks can expand their affiliates into a greatdeal of location Large operation area

+ Capital of CBs decides their liquidity as follows:

If the capital is large  large actual reserve create favorable conditions forbanks to collect funds and timely response to situations in which customerswithdraw more cash than initial expectation

If the capital is large  banks can diversify their portfolio (investment in thestock market: secondary reserve)  spread risks safer business

If the capital is large  banks will build up good reputation in the market 

in case CBs are short of funds for payments, they can favorably borrow and fill theliquidity shortage, etc

If their capitals are large, it is common fact that CBs get supports from thegovernment since if big CBs go bankrupt, the state monetary system and economywill be seriously affected

+ Capitals of CBs determine their competitiveness When their capitals arelarge, they will have competitive advantages:

Large capital helps banks minimize risks cut costs for risks.

* Roles:

- Equity ensures safe operation of CBs

- Equity as a self-financing source: purchase fixed assets, build technicalinfrastructure, enable the bank to organize all business activities

- Equity as a self-financing source: adjust all the bank's business activities(scope, fixed assets’ value, asset structure, etc.)

The charter capital is the initial capital of a CB According to the decision

No 327/QD- NH5 dated 04/10/1997 of the Governor of the CB of Vietnam,"thelegal capital of CBs is the minimum capital required for the establishment of thebank", and "the charter capital of a CB is capital contributed by shareholders and isstated in the charter of the bank's activities." Bank's charter capital must always bebigger than or equal to the legal capital and can be formed from many differentsources depending on the form of ownership

+ Additional equity in the operation:

Equity of banks constantly increases over time thanks to the additionalcapital This additional source can originate from profit or public offerings,financing, etc Characteristics of this form of HDV is not regular, but helps bankshave large equity in times of need This kind of equity is not regular However, ithelps banks have large equity when necessary

+ Funds:

In the operation process, banks have a great number of funds Each fund hasits own purpose: investment and development fund, provident fund, reserve, welfareand bonus fund, etc These funds are formed from the bank’s income includingadditional charter capital and reserve funds Additional equity is a part of the banks’self-financing source This kind of equity can form special funds such as reservefund, technical development fund, welfare and bonus, etc.

+ Debts that can be converted into shares:

The medium and long-term loans which are stable and can be converted intoshares shall be considered as a part of the bank's equity Banks can use this kind ofcapital for such purposes as investing in real-estate, land and sometimes do not have

to pay these debts when they are mature

* Features:

- Mobilized capital is not owned by CBs

- Mobilized capital is highly unstable (so banks need to reserve)

- Mobilized capital accounts for the largest proportion in the total capital ofCBs

- Mobilized capital has various origions, durations, values and types of

* Roles:

Mobilized capital is the main capital source of CBs It helps banks meet most

of the credit demands

Other mobilized sources:

Banks can obtain mobilized capital by issuing valuable papers such as bankbonds, bank bills, certificates of deposit, etc

c Loans

* Definition:

Loans are banks’ capital that originates from banks’ relationship for lending

on the interbank market and set-up loan funds

* Features:

- Loans are not under banks’ ownership

- Loans do not account for a large part of the total capital (banks do notheavily depend on this source of capital for business)

- Loans are of higher stability than mobilized capital

- Loans are of high cost and their interest rates are sensitive to changes in themarket

- Loans have short term (days or weeks)

* Roles:

Loans play a special role for the business of CBs (quickly deal with demands

of large quantities)

* Components: Loans from the Central Bank and other CBs.

When the mobilized capital is not enough while the demands for paymentand refunding to customers increase, CBs must lend in order to meet the saidrequirements These loans originate from the relationship of the CB with the CentralBank and other credit institutions The loans are commonly used when a CB uses upits available funds and do not have enough funds for its operation Normally, a CB

is to borrow other domestic credit institutions before borrowing the Central Bank

When CBs borrow from the Central Bank, we can call this case a form ofdiscount and rediscount to offset shortfalls in payment and supplement reservecapital, etc Since the State Bank strictly monitors these borrowings, CBs mustcomply with certain guarantee and control requirements when borrowing

- This type of capital is not under the ownweship of CBs

- Its scope is small

- Its expenses are not high

- Its stability is low

* Roles:

Like other types of capital, this one serve CB’s activities

* Components:

- Investment trust fund

- Funds for payment

- Other capital sources: foreign loans and borrowing holding company (ifany), etc

CBs can create capital for their business through the implementation of such

paper credit, doing agent services, etc Accordingly, banks can use a significantamount of temporarily idle capital in the process of collection or payment Theseloans play an important part of supplementing other sources of deposits, meetingloan demands and medium and long term investments In other words, these loansare solution to difficult situations.

In short, mobilized capital is the largest proportion of the total capital of

CBs That follows the theoretical basis because banks are always regarded asenterprises doing capital business and use borrowings for loans Mobilized capital isthe main tool which is very important to CBs’ operations and determines theirbenefits and reputation

1.1.3 Capital - mobilization at CBs

1.1.3.1 The concept of capital - mobilization

Banks carry money tradings by mobilizing capital for loans, investments andproviding other banking services Capital - mobilization which is creating funds forCBs plays an important role and influences the quality of CB activities: It isconsidered the vital factor of CBs, especially banks of large scope Mobilizingcapital can be considered as one of the earliest activity among the activities of CBs

In the early stages of banking activities, the activity was simply storing valuableassets to ensure their security Therefore, the depositors had to bear charges, notbanks At that time, deposits were considered consignments and did not play a role

as a part of banks’ capital Money at that time could not be circulated and makeprofit Since credit demands grew, banking services has developed and the situationhas reversed, i.e.the banks have had to bear charges (interest rates – credit price)and deposits has become usable and the largest source of CBs’ capital Therefore, incontrast to the past, banks have to go begging depositors today While previously,banks were a passive party, almost all banks today have policies and methods toattract deposits Therefore, methods of mobilizing capital become increasinglyimportant, rich and diverse It can be said that at present, mobilization of capital isone of the most important activities and relates to the survival of CBs

The following definition can be provided: "Capital - mobilization is theactivity in which banks seek funds available from other entities for the purpose ofdoing business and ensuring normal operation and efficiency of itself in accordancewith the law ".

1.1.3.2 Objectives and principles of mobilizing capital at CBs

a Objectives of mobilizing capital at CBs:

The objective of capital mobilization is the basis for the formulation of plansand strategies on banks’ capital resources Banks’ capitals are quite diverse, includemany components of which some are unstable but are of high transaction capabilityand low interest rate (which means lower cost of mobilizing capital) whereas somecomponents limit the possibility of issuing cheque and are highly stable but of highinterest rates (which mean high funding costs) Therefore, capital’s good structure,low cost, high stability and long-term duration are the objective that CBs are aiming

at These are important factors in the implementation of "safe and effective target"

- First objective: is seeking cheap capital

- Second objective: is creating appropriate capital structure and stability

- Third objective: is building capital’s scope and stable growth

- Fourth objective: is effectively managing capital sources

b Principles of mobilizing capital

The first principle: capital - mobilization must be based on the demand forloans Banks must calculate loan demand to determine their necessary capital.Banks must ensure the balance between capital - mobilization and its use in terms ofsize and duration to improve the efficiency of their capital

The second principle: Banks receive deposits from customers (includingprivate enterprises, state-owned enterprises, state agencies, social organizations andcitizens) Banks are responsible for fully and duly refund these deposits and theirinterests subject to the agreements between their customers and them Accordingly,

a bank is not allowed to raise more than 20 times its total capital and reserve funds

The third principle: Banks are not entitled to issue bonds, which give bonds’owners the right of managing the bank directly or indirectly.

1.1.3.3 The forms of capital - mobilization

When its own capital is not enough for transactions and payments, a CBmust raise external capital Normally, this external source of capital accounts for alarge part of the total capital structure and ensure the CB’s effective operation Themain forms of external capital are as follows:

+ Time deposit: is the deposit type that cannot be withdrawn for a certainterm or period of time as per the agreement between a bank and a depositor Due tothe harsh competition in the industry, however, banks allow depositors to withdrawtheir deposits before their maturity In this case, the interest rate is the same as that

of demand deposits Time deposit is a very stable source of banks’ capital as theywhen time deposits are withdrawn Therefore, banks often offer a variety of terms inorder to meet customer demands

Savings:

In essence, savings are a part of individuals’ idle income which is consigned

in banks for the purpose of safe accumulation and earning interest This is thetraditional form of mobilizing capital of banks Savings are confirmed on savings-books and enjoy relevant interest rate as per regulated by the bank receiving them

and are insured as per regulated by laws on savings The purpose of savings is toearn interest and accumulate In the market economy, savings develop into twoforms namely: demand savings and time savings.

+ Demand savings: A type of deposits that can be withdrawn at any time but

are rarely used for the purpose of payment

+ Time savings: that cannot be withdrawn for a certain term or period of time

as per the agreement between a bank and a depositor (usually have higher interestrates than demand savings)

Mobilizing capital by issuing debt instruments:

+ Bank bonds: are a long-term debt instrument (commonly 5 to 10 years) that

is publicly issued by a bank Par value, interest rate and maturity date are clearlystated on these bonds Bank bonds’ interest rate is generally higher than or equal togovernment bonds This mobilized capital is stable, the and large but its cost is alsoquite large

+ Bank bills: this is the form of capital mobilization with shorter term andhigher interest rate than savings form Bank bills are easily converted into cashwhen necessary so this is the preferable choice of investors

+ Certificates of deposit: This is the certificate of banks’ borrowings Thesecertificates indicate their interest rates, amounts of borrowings and maturity dates.Previously, interest rates of these certificates were fixed In order to adapt tochanges in the market, however, bills’ interest rates are negotiated and agreed byboth banks and depositors This form is a kind of short-term investment that attractssmall business owners and households Besides, thanks to their fixed maturity, billsbrings many benefits to banks

The issuance of bank bonds and bills depends on both the purpose ofmobilizing capital of CBs and the approval of the State Bank These bonds and billshave the higher interest rates than those of deposits and savings and high stability

Mobilizing capital from borrowings (borrow Central Bank and other CBs)

Nowadays, borrowings account for a larger and larger proportion of CBs’capital CBs’ borrowings can be formed from several supplies of which main onesare as follows:

+ Borrowings from the Central Bank.

CBs seek profits by converting borrowings to loans Mobilizing capital isessentially a form of borrowing from the population, economic organizations andenterprises CBs must pay interests on these borrowings Subsequently, banks usethese borrowings to lend at a higher interest rate to use the capital mobilized tohigher interest rates and earn profits from the difference between interest rates.However, no matter how cautious in lending, the situation in which banks lack ofability to pay or payment for customers is unavoidable In that case, after havingmade the necessary financial measures, the ultimate solution is to borrow theCentral Bank As the Bank of banks, the Central Bank will become the savior forCBs in case they are short of funds for payment

In our country today, CBs borrow from the central bank in the major formsbelow:

- Additional short-term borrowings: is a CBs’ capital-mobilization form in

which they ask for approval to borrow additional short-term funds With thiscapital-mobilization form, CBs are entitled to borrow once their line of credit is notexceeded as per negotiated previously

- Re-financing is a capital - mobilization form in which the Central Bank

lends CBs through valuable papers These papers can be converted into cash whennecessary Refinancing can be made in two forms: secured loans and rediscountloans

- Payment borrowings are relatively short-term funds that are used by banks

to cover their temporary shortage in payment

+ Borrowings from other credit institutions on the interbank market.

When facing financial difficulties, to ensure the prestige of the Bank, the bestsolution is to borrow CBs can borrow from other credit institutions on the interbankmarket or the currency market and abroad.

- Other forms of capital - mobilization:

In addition to the above forms of capital - mobilization, banks can attract idlecapital from the population, from the economy through the fiduciary activities ofsocial services like club services, being payment intermediate or a stock agent forcompanies, etc Thanks to these forms of capital - mobilization, banks can use asignificant amount of temporarily idle capital in the process of collection orpayment

1.1.4 The role of mobilized capital for business activities of CBs

CBs are special enterprises of which the major business is in the monetaryfield In the context of a changing economy, CBs have gradually shifted to businessaccounting, take responsibilities of their operation performance, and are no longersubsidized as previously Banks tend to develop comprehensively The fundsmobilized are to determine the scope and direct activities of CBs Banks rely ontheir mobilized capital to perform credit transactions, investment services, etc

- Capital is the basis and the foundation of business activities of CBs

- Capital determines the competitiveness of CBs

- Capital ensures CBs’ liquidity and prestige

- Capital determines the scope of CBs’ business activities

- Mobilize capital also influences the operation performance of CBs

In essence, CBs do business in monetary market, i.e using borrowings forloans In other words, capital that is mobilized by CBs will be used for lendingindividuals and other organizations Therefore, capital - mobilization plays afundamental role in CBs’ business and existence Accordingly, capital mobilizationaccounts for a large number of banks’ activities and determines their success orfailure

1.2 The efficiency of CBs’ capital mobilization

1.2.1 The concept of capital mobilization efficiency

"Business Efficiency” is the highest goal, a destination that every businessowner wants to reach and CBs are not the exception Their business efficiency isalways paid much attention In order to achieve effective business, the firstrequirement for a bank is the effective capital mobilization Capital mobilization isthe first activity in the business process of CBs It determines their survival anddevelopment

The efficiency CBs’ capital mobilization is a correlation between the results

of activities to raise capital and its costs The mobilized capital meets the relevantdemands while maintains acceptable costs, ensure safety in doing business andhelps banks earn profits

In order to achieve the above-mentioned targets, the bank must have theappropriate and effective capital mobilization procedures and activities

1.2.2 The need to improve the efficiency of capital mobilization

Capital is among the basic inputs in the business processes of eachenterprise It can be stated that it is impossible to achieve the overall socio-economic objectives of the nation in general and the business objectives of aspecific enterprise in particular without capital As an enterprise, a monetaryintermediary, CBs’ capital plays such a very important role that it can be said to be

a top concern

On the social perspective, to achieve the nation’s industrialization andmodernization targets, it is necessary to have a huge amount of capital asprerequisite to set up materials, infrastructure, technologies and businesses

On the bank perspective, to be able to conduct business effectively, diversifybusiness models to improve the competitiveness and profitability of banks, banksneed a large amount of capital mobilized from domestic sources most of which arehouseholds’ savings Moreover, the capital of the socio-economic organizations isnot always used on a regular or seasonal basis Therefore, the amount of idle capital

in organizations is also very large A huge task of each bank is to focus and attract alarge capital in order to invest in production and business activities, the socio-economic buildings and infrastructure and turn their capital into socio-economicbenefits.

• Mobilized capital accounts for a large proportion in the business capital

of CBs.

The business capital of CBs include equity, capital, charter capital, mobilizedcapital, borrowings, etc of which mobilized capital accounts for a largeproportion (commonly more than 70%) of banks’ business capital On the other hand,due to limited equity, in order to ensure their smooth operations and meet the demandfor capital in the economy, banks need to foster their capital mobilization practices,especially when idle capital in the population is still "potential"

• The efficiency of capital mobilization reflects the qualification and ability

to raise capital at low costs and high performance

Mobilizing capital at low costs will save business costs and increase profitsfor banks Therefore, improving the efficiency of mobilizing capital is a vital issue

of CBs

• Ensure sufficient capital for banks’ business

Ensuring sufficient capital takes not only quantity of capital but also thebalance of different currencies (USD, USD, EUR, etc.) as well as the duration ofcapital (short, medium and long term) At the present, the major form of mobilizingcapital is short-term one However, the demands for medium and long- term loansare significantly large Therefore, banks face plenty of risks which easily results intheir inability to cover payments if they use short-term capital to expand themedium and long term investment with a high proportion (about or more than 30%

of the total capital) Accordingly, this will lose depositors’ in the banking system

• Meet customer demand for loans.

CBs are the main subject meeting businesses’ capital needs Using their

will provide capital for all economic activities and timely respond the capital needfor the process of reproduction, promoting the efficiency of capital to make profits,contributing to the economic growth of countries.

• Effectively circulate mobilized capital

According to business principles, only when sufficient output of capital isfound do banks foster their capital mobilization If mobilized capital is “stagnant”because it is not used for loans while banks must still bear input costs, they mustmobilize funds perfunctorily This affects the business activities of banks as well asthe provision of capital for the economy Banks must have methods to approachfeasible projects, seek stable markets to ensure the absorption of funds for theireffective expansion

In order to achieve the above goal, banks must have appropriate and effectivecapital mobilization practices

1.2.3 Criteria for evaluating the capital mobilization efficiency

Mobilizing capital is one of the basic and major operations that are vital forCBs Therefore, it is understandable that the study and exploration measures toenhance the efficiency of capital mobilization at CBs are indispensable

In order to enhance the efficiency of capital mobilization, in addition to studyforms and methods of capital mobilization, criteria for evaluating the capitalmobilization efficiency should also be explored

1.2.3.1 The qualitative indicators evaluating the efficiency of banks’ capital mobilization

The efficiency of mobilizing capital at banks must be evaluated through thefollowing aspects:

- Mobilized capital must meet the business demands of banks It must grow,

be stable in quality to satisfy increasing demands for loans, payments and otherbusinesses of banks Besides, mobilized capital must be stable in duration If banksraise large amounts of capital that is not stable in duration, the amount of capitalavailable for loans and investment will not be large Accordingly, their capital

efficiency is not high and banks must constantly confront capital shortage forliquidity On the contrary, if banks can raise a stable capital, they will feel secureabout investing most of the capital in high-income activities That does not mean ifbanks find stable sources of capital, they will mobilize those all sources and viceversa The capital mobilization must be subject to the actual capital needs of banks Ifthe mobilized capital is small, banks can neither meet their customers’ needs anddiversify their business, nor expand for competition so they will lose their customers.

If the mobilized capital is too large to be used up, it will be "frozen" and banks’ profitwill reduce because they still have to pay interest and such costs as storage,accounting, treasury, etc

- The convenience level for customers: This criterion is evaluated through thedepositing and withdrawing procedures

- The diversity of capital mobilization forms or methods: This criterion isreflected by the number of capital mobilization products and services of a bank at agiven time Capital mobilization products are results of providing more diversifiedterms, forms of depositing and withdrawing, flexible interest rates, etc so thatcustomers have more selections when they seek banking services

- Safe capital mobilization: Today, banks always try to expand theiroperation network through the opening of affiliates, domestic and foreignrepresentative offices and their activities are no longer restricted within a certainregion Interrelation among CBs becomes increasing close This helps banks operatemore effectively, but on the other hand, it will be more dangerous if one of theactive business partners becomes weak or even goes bankruptcy Risks in businessactivities in general and in capital in particular increase with the development andexpansion of banks and its business scale

In summary, effective capital mobilization is ensuring both a stable capitalsource and satisfying customers’ demands

1.2.3.2 The quantitative indicators evaluating the efficiency of banks’ capital

Based on the purpose of studying, the efficiency of capital mobilization isevaluated through various aspects Therefore, criteria for evaluating the efficiency ofcapital mobilization have many different types However, from the perspective of a

CB, the efficiency of capital mobilization will be reflected through the use and costs

of capital

Calculating the costs of capital mobilization is essential for banks because itallows banks to search for the lowest capital for their business activities In caseother conditions do not change, banks typically seek and use funds, which bringincome to them after deducting all expenses

Moreover, calculating the costs of capital mobilization will create a basis forbanks to determine appropriate interest rates in line with their business conditionswhich help maximize their profits

a Target profit: calculated by the difference between the total cost of capital

mobilization with revenue from the use of the capital mobilized for the purpose oflending and investment

Profit = Revenue from capital - Cost of capital mobilization

b Return on sales target: this ratio indicates the percentage of profit in sales

from capital mobilization activities This ratio is positive, i.e capital mobilizationactivities are effective; the larger the ratio is, the higher the efficiency is Negativeratio means inefficient capital mobilization:

Rate of Return on sales = 100% x

Net profit ( after tax)

Sales

c Return on costs target: this ratio indicates how many percent of one

VND is created from one VND cost In other words, it specifies the percentage ofprofit in the costs of mobilizing capital The higher this ratio is, the higher profitfrom capital - mobilization activities and the more effective capital - mobilizationactivities are

In addition to the above important criteria, some other criteria for evaluatingthe quality of capital mobilization are as follows:

d Capital of steady growth rate:

This criteria is evaluated by the level of increase / decrease in mobilizedcapital and mobilized term capital Capital that increases steadily over years (thefollowing year – the previous year> 0), achieves set capital targets and increasessteadily is capital of steady growth

Capital of large amount term funds proves its high stability

Mobilized capital must have stable growth and be stable in quality to satisfyincreasing demands for loans, payments and other businesses of banks Besides,mobilized capital must be stable in duration If banks raise large amounts of capitalthat is not stable in duration, the amount of capital available for loans and investmentwill not be large Accordingly, their capital efficiency is not high and banks mustconstantly confront capital shortage for liquidity On the contrary, if banks can raise astable capital, they will feel secure about investing most of the capital in high-incomeactivities

This indicator is measured by the increase or decrease rate of capitalmobilization and the amount of term mobilized capital Capital that increases steadilyover the years and helps achieve capital targets is regarded as capital of steady growthrate

e Mobilized capital structure must be consistent with capital demands

Mobilized capital structure must be approproate and consistent with capitaldemands in order to fully satisfy them

Total mobilized capital / total debt balance for loans and investments: Thisindicator evaluates both the affiliate's ability to raise capital for lending and theefficiency of capital use.

The above indicator reflects the interrelation between mobilized capital andits use so it is commonly paid attention by banks The indicator target should bemaintained at an appropriate rate depending on banks’ potentials However, thestrong increase in this indicator shows that banks have less reserve capital to financetheir growth and to protect them against the mobilized capital fluctuation, especiallyfor banks those rely on customer deposits to fund credit growth

To achieve the above-mentioned target, banks must have a rational structurebetween short-term mobilization of short-term loans, between medium-and long-term mobilization and medium and long term loans This helps avoid the risk ofbeing unable to pay because of using short-term funds for long-term loans, leading

to customers’ loss of credibility for banks

f Proportion of deposit types

This indicator shows the structure of deposits subject to such criteria astime, type of currency, demand deposits, savings deposits, credit cards, POSpayment, etc

g Capital structure:

This criterion is assessed by the comparison of each capital type and the totalcapital amount Thereby, the stability level of every capital type and the possibility

of mobilizing stable and long-term capital are identified

The proportion of mobilized capital can be divided according to thefollowing criteria:

+ Terms of funds: short or long-term

Proportion of the capital

type i =

Capital type i

+ Types of currency: domestic currency, foreign currency

+ Origins: from individuals, savings or financial institutions.

1.2.4 Factors influencing the efficiency of capital mobilization

The main task of CBs is circulating surplus funds to customers who are short

of funds in the form of mobilizing capital (borrowings) and loans and investments.This is the function of a financial intermediary between people or organizationswho have surplus funds and people or organizations who are short of funds.However, the capital mobilization of CBs is not always smooth as it is influenced

by several factors

1.2.4.1 Objective factors

* The legal environment and the macro-economic policies

The legal environment and macroeconomic policies directly influence thecapital mobilization policies and direction of CBs CBs build their own businessstrategies complying with the state law and macro-economic policies such aspolicies on savings, interest rates, etc The Central Bank monitors efficiency-oriented monetary policies that refer to market conditions and coordinates withother macroeconomic policies in order to facilitate and promote the development ofthe money market as well as the operation of the banking system The construction

of a sound legal environment is also an important factor contributing to the capitalmobilization efficiency of CBs

* Socio-economic context:

Socio-economic context is a factor that generally influences capitalmobilization and circulation of the whole economy An illustration is that alongwith the economic development, available funds for savings deposits at CBs areincreasing However, inflation rate is a factor that strongly affects CBs’ capitalmobilization People consign their money at banks in the hope that they will earn acertain amount of interest However, high inflation rate or its fluctuation can causecurrency depreciation and people transfer their deposits to other investments that are

In addition, other factors such as personal income, spending season, etc arealso relatively influential factors High-income households in cities will form amajor deposit source An increase in incomes is a condition for increasing the sizeand changing terms of deposits while spending season influences the size andstability of deposits An example is that at the end of the year, the source of savingsdeposits as well as deposits of enterprises tend to sharply decline, especially in ourcountry where payments today are commonly made in cash.

* Habits of using banking services:

Habits of using banking services are also an important factor influencing thecapital mobilization efficiency Economic organizations and individuals not onlyhave a purpose of earnings profit from their idle capital but also want to enjoybanking services such as payment, transfer, credit card, debit card, etc The morecommon the habit of using bank services of individuals and economic organizations

is, the more capital mobilization opportunities banks have

* Harsh natural environment: Natural disasters, epidemics, etc.

The above- mentioned is natural disasters so people cannot determine orinfluence them but can only forecast and prevent them For banks, technology,equipment and human resources are very important factors Natural disasters cansignificantly damage machinery and equipment as well as human resources ofbanks Accordingly, natural disasters can suspend all activities and have negativeimpacts on banks’ business performance

1.2.4.2 Subjective factors

* Policies on interest rates

Being capital price, interest rates have a direct regulatory influence onlending and capital mobilization activities of CBs They influence earnings whenconsidering business performance and the interest rate difference between capitalinputs and outputs When interest rates change because of changes in the capitalsupply and demand in the currency market, banks will have to seek and have soundplanning for appropriate interest rates

Interest rates are the top concern when an individual or an economicorganization wants to deposit at CBs Among banks those are safe for customers’money and have a great deal of utility services, customers will select a bank that has

a higher interest rate to deposit their money It is entirely understandable because inthe economy, high interest/benefit areas always attract more investors as they alwayswant to maximize their profits

Interest rates are also a factor that strongly influences the scale of capitalmobilization However, not all interest rate types share the same level of influence.Commonly, interest rates of savings have more influence than other types Peoplepay attention to savings’ interest rates to compare it with the rate of depreciation ofthe currency and the profitability of the investment in savings over investment instocks, bonds and real estate, etc Thereby, they decide whether they should deposit

at banks and the amounts of money and deposit types they should select Foreconomic organizations, the interest rates are less important because mostbusinesses send money to CBs for the main purpose of payment Therefore, thecapital source from economic organizations is influenced by payment technology,techniques, liquidity and lending capability of CBs

Interest rates are also sensitive elements and change frequently associatingwith changes in capital supply and demand Therefore, in order to be able to bothattract capital and ensure their competitiveness, banks must regularly keep track ofmarket statistics and interest rate fluctuations in their operation location or region toadjust timely

Strong increase in interest rates means that the cost of deposits also goes up,

if profits are low or negative, mobilizing capital is regarded as ineffective

* Banking technology.

Banking technology needs to take a step forward because it directly relates tovarious activities such as transaction, payment, accounting, etc In the competitivemarket, CBs should constantly innovate their technologies to diversify and

provides services of high quality to satisfy the needs of customers, it will raise morecapital Accordingly, its profits, returns on sales and returns on costs also increasesand the capital mobilization efficiency will become higher.

* Bank marketing strategies.

Making differences and dominance are competitive advantages of CBsagainst their competitors It is not easy to gain these advantages because theapplication of marketing in banks face several difficulties such as economicdevelopment trend, the increasing needs of our customers, etc Banks need tocontinuously innovate their equipment, staff’s technical and professional skills, etc.Besides, bank-marketing strategies need to identify capital-mobilization approaches

of reasonable terms, reasonably priced and suitable for each stage of development tomeet the demands for quality and types of banking products of customers.Moreover, bank-marketing strategies must stimulate the needs of potentialcustomers in order to attract their investment so that banks can constantly increasetheir new clients and raise more capital

Based on market research, CBs need to capture all the information about thebusiness environment and customers and at the same time develop a marketingstrategy accordingly The marketing techniques/tools focus on four major policies:

- Policies on information, research and investigation.

The implementation of this policy requires the mobilization of all materialand human resources for monitoring, analysis and synthesis of areas relating to the

CB market Thereby, sound business policies in general and capital mobilizationpolicies in particular can be made in accordance with customer needs and demands

of the capital market

- Policies on products and prices

The products and services of CBs include the basic services in theprofessions of capital mobilization, capital use, payment and other supportingservices such as customer care, information upon request Several supportingservices do not directly create profits for banks, but these services can stimulate

customer attention and attract their investment to increase their level of satisfactionwith basic provided services Particularly, the diversification of capital mobilizationservices will create favorable conditions for CBs to expand their capitalmobilization capability Obviously, a CB with its high quality, various, fast andconvenient services would have more advantages and attract more funds.

In the field of currency trading, the price is mainly reflected through theinterest rates of deposits, borrowings and banking costs Price factor plays animportant role in capital mobilization, uses and provides other services of CBs.Maintaining competitive interest rates for capital mobilization is really necessary,especially when market interest rates are relatively high

- Distribution policies.

The more distribution channels and counters a CB has, the moreopportunities it has to interact with customers and the stronger ability it has to raisecapital However, banks also need to expand their cost elements that are consistentwith the obtained efficiency Distribution polices are a collection of all the materialmeans to introduce products and services from CBs to customers Thediversification of distribution channels and expansion of the counters (the number

of counters, locations of counters, products and services provided at the counters,equipment arranged at counters, qualifications of staff at counters, etc.) have a hugeimpact on mobilizing capital activities of CBs The more distribution channels andcounters a CB has, the more opportunities it has to interact with customers and thestronger ability it has to raise capital However, banks also need to expand theircost elements that are consistent with the obtained efficiency

- Communication and promotion policies

CBs commonly give top priority to communication and promotion policiessince the communication between banks’ staff and customers creates their imageand customers’ credibility In addition, advertising is a very important approach,which improves the position of CBs, attracts more customers and builds customer